TAXATION Business Profits War Tax; Dominion Income Tax; Income War Tax Act Amended. CANADIAN CHARTERED ACCOUNTANT, January, 1921, p. 194-202. Great Britain Ogg, F. W. Income Tax, Excess-Profits Duty and Corporation Profits Tax. INCORPORATED ACCOUNTANTS' JOURNAL, April, 1921, p. 136-41. Snelling, W. E. Practical Income Tax; a guide for the business man and the commercial student. Ed. 4. London, Sir Isaac Pitman & Sons, 135 p. $1.50. New York State Montgomery, Robert Hiester. New York State Income Tax Procedure, 1921, Including Corporation Franchise Tax. New York, The Ronald Press Co., 1921. 682 p. $5. United States Dean, W. N. Effect of Income Taxes on Investments. ADMINISTRATION, March, 1921, p. 309-12. Montgomery, Robert Hiester. Excess-profits Tax Procedure, 1921, Including Federal Capital Stock (Excise) Tax. New York, The Ronald Press Company, 1921. 594 p. $4. Montgomery, Robert Hiester. Income Tax Procedure, 1921. New York, The Ronald Press Company, 1921. 1206 p. $8. TEA Creighton, J. Modern Methods and Management of the Tea Trade. BUSINESS ORGANIZATION AND MANAGEMENT, February-April, 1921, p. 531-9, 637-42, 83-6. WAGES, FEES, ETC. Premium Wage Plan in Milwaukee Shops; résumé of six years' experience with bonus pay for standardized jobs. ELECTRIC RAILWAY JOURNAL, March 19, 1921, p. 529-32. Profit-sharing Annan, William. Profit-sharing. ACCOUNTANTS' MAGAZINE, March, 1921, p. 147-72. Answer all the following questions: 1. You are engaged to make a balance-sheet audit of the A. B. Co., a corporation trading in certain patented machines, of which it owns the patents, and in certain accessory materials necessary to their operation. The company owns no plant but buys its stock-in-trade from the actual manufacturers. The bulk of its business consists of outright sales, but it also leases some of its machines at a nominal rental under contracts which bind the lessees to buy from itself all the accessory materials. It owns four patents, which are 20, 19, 18 and 5 years old respectively. For the first three patents it gave practically all of its capital stock and some cash; the remaining patent covers valuable improvements on the original machines invented by one of the officers and is assigned to the company without compensation, but the company has charged the expenditures, including part of officers' salaries, on these improvements to the property account. No amortization of the patents has ever been charged off. On your arrival at the company's office on January 15, 1921, the following balance-sheet of December 31, 1920, is handed to you. (b) Notes receivable: trade, officers' and other, mingled in one account without distinction (c) Accounts receivable: trade, officers' and other, not classified, and no provision for bad debts ... (d) Investments: stocks, treasury stock and Liberty and other bonds, at cost, which is higher than present market value (e) Inventories: from perpetual inventory book, no actual inventory ever having been taken (f) Contract machines: machines leased under contract, the cost values thereof being about 25% of the total amount charged to this account, the difference being said to be the cost of building up this particular part of the business in past years (g) Property account, includes cost of patents, expenditures for improvements thereon, patterns, designs, office furniture and fixtures, etc., not classified in any way...... $.... $.... $.... $.... $.... Total assets LIABILITIES: (h) Notes payable: trade and banks, not classified (i) Accounts payable: trade State how you would proceed to verify each item of the foregoing balance-sheet, in view of the facts submitted, and also what steps, if any, you would require the company to take before you would sign an unqualified certificate. (Number each answer to correspond with the item number on the balance-sheet.) 2. You are called upon to audit the accounts of December 31, 1920, of a company incorporated in the state of New York, which owns all the capital stock of two other companies, one incorporated in Great Britain and the other in Russia. No reports have been received from the Russian company since December 31, 1917. All the intercompany transactions have been recorded on the books at the pre-war rates of exchange. Before giving an unqualified certificate to the consolidated balance-sheet of these companies at December 31, 1920, on what basis would you require the accounts to be stated in regard to fluctuations in exchange and possible loss on Russian assets, assuming that the balance-sheet of each company revealed the following assets and liabilities? Goodwill Plant and equipment Accounts receivable Cash Capital stock 3. In auditing the accounts of a stock broker, what would be the first matters to which an auditor should direct his attention? Give reasons for your answer. 4. In auditing the December 31, 1920, balance-sheet of a textile mill, you find that there are large contractual obligations for the purchase and future delivery of raw cotton at prices considerably above the market price at that date. Draft a letter to the client outlining your reason for wishing to qualify your certificate, if no allusion is to be made in the balance-sheet to the foregoing fact, and suggesting alternative methods of statement which would meet with your approval and enable you to append a clear certificate. 5. When conducting an audit of the accounts of a corporation, you find that no allowance has been made for depreciation on buildings, machinery and plant, and on inquiry you are met with the statement that the appreciation on real estate offsets any depreciation that may have taken place in the physical plant. Prepare a memorandum for submission to the board of directors, setting forth your views on the subject. 6. A firm having several branches maintains in its ledger an account with each branch, and charges to such account all goods sold to the agent for stock, accounts receivable arising from sales by the branch within its territory and cash collected by the branch. At the end of the year the balance of each branch is treated as an ordinary account receivable and is included in the general debts due the firm. In certifying the accuracy of the firm's balance-sheet, would you pass such accounts receivable? If not, state what objections there are to this method and how you would deal with the accounts. Examination in Accounting Theory and Practice PART I. MAY 18, 1921, 1 P. M. to 6 P. M. Answer questions 1 and 2 and any three other questions: 1. Following are the trial balances of Company A and its subsidiaries at December 31, 1920: The inventories at December 31, 1920, were: Company A purchased the entire stock issues of Companies B and Cat January 1, 1920, at the prices shown in the trial balance. During the year each of the three companies declared and paid a 5 per cent. dividend. Company A took up its dividends from Companies B and C by credits to surplus. The various entries for the dividends were the only entries affecting the surplus accounts during the year. |