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were holders in due course without notice of the alteration. The Court decided that the note was taken in the course of regular business and for value, and therefore the plaintiffs were bona fide holders for value.

The State of Connecticut holds that trustees do not take negotiable notes as bona fide holders for value, and the states differ on the questions of an antecedent debt being value. The law of each state must be examined on this point on account of the diversity of opinions.

The Bank of Wyndmere received and paid a check drawn on the First National Bank of Lisbon. The signature was forged. It was paid finally by the First National Bank without discovering the forgery. The supposed maker of the check discovered the forgery and refused to allow the bank to charge it to him. The Bank of Wyndmere, which was the first to receive the check, refused to refund to the First National Bank of Lisbon and an action was begun for its recovery. The Court held that a drawee who pays by mistake a forged check may recover the sum paid unless the drawee had in some way misled the party receiving the money. This was a North Dakota decision. The general rule is that the drawee is bound to know the signature of the drawer and so cannot recover back money paid on a forged check. If the party who received the money on the forged check in any way contributed to the forgery, the money could be recovered. There is a tendency to limit the doctrine that a bank is supposed to know the signature of the drawer at its peril, as for example in Ohio it has been held that where the holder of a check has not made due inquiry as to its validity before taking it and the bank has the right to presume that such inquiry has been made the money may be recovered.

News Items. Governor Hanly has appointed Harvey C. Cheney, of Lafayette, as executive accountant of Indiana. This position was created by the last Legislature and carries with it a salary of $2,500 a year. The relation of the executive accountant to the State institutions and State officers is much the same as that of the bank examiner to the banks of the State. Mr. Cheney formerly was auditor of Tippecanoe County, Indiana.

The Public Utilities Commission of the Second Division of the State of New York is reported to be holding conferences with a view to arranging a uniform system of accounting for railroads under the supervision of the Commission.

C. P. A. Question Department.

CONDUCTED BY LEO GREENDLINGER, B. C. S. Criticism and exchange of ideas will clear many a doubt and at the same time improve shortcomings. To solve, compare, and criticise C. B. A. problems, and thereby to aid in bringing about a uniform American standard for C. P. A. examinations, is the object cf this department. With the aid of suggestions and criticism from the professional brethren, it can undoubtedly be achieved. Inquiries will be cheerfully answered.

The first of the two following problems has been submitted, with solution, to THE JOURNAL by Gustave Jacobsson, B. A., and is the fifth question in Practical Accounting set by the University of Illinois at the examination for certificate as C. P. A., May, 1906. The second is the sixth question in Practical Accounting set by the N. Y. State Board, June, 1900, and is solved at the request of subscribers of The JOURNAL.

QUESTION 5. Two printing and stationery houses decide to combine their businesses for the purpose of reducing expenses. An accountant is called in to examine the books of each company and report upon the financial condition of each and also upon the past profits. Owing to the fact that corporation A has never separated its purchases as between its retail and its manufacturing department, he finds it impossible to prepare a combined profit and loss account showing the gross profit of the retail departments and the manufacturing departments of each company. The following statement, however, exhibits a summary of their combined trading accounts: Total sales

Cost of material in goods sold... $185,000.00
Manufacturing labor

64,000.00 249,000.00
Gross profit

$123,000.00 Less total expenses

93,000.00 Net profit

$30,000.00 The amalgamation is effected, and after carrying on the business for twelve months an inventory is taken and the books closed. It is found that instead of realizing a profit of $30,000.00, they have only made a profit of $14,000.00.

An analysis of the various accounts, made by their accountant, showed the following summarized statement:


$176,000.00 Less cost of merchandise

119,000.00 Gross profit retail department...

$57,000.00 MANUFACTURING DEPARTMENT. Total sales

$181,000.00 Less cost of material

in merchandise...... $64,000.00 Less cost of manufacturing labor ........ 63,000.00 $127,000.00 Gross profits manufacturing department


$111,000.00 Less expenses

97,000.00 $14,000.00


30.0% 35.5%


As a basis of comparison with the former year's results, the percentages of corporation B, in respect to their retail department and manufacturing department, may be accepted as applying to the whole of that year's results of the combined companies. These percentages were as follows:


Cost of merchandise

Gross profit


Cost of material in merchandise
manufacturing labor

65.5% Gross profit From the above information work out by percentages and show the causes affecting the reduction in profits from $30,000.00 to $14,000.00.


BY MR. JACOBSSON. A great thinker has said that a man can accomplish almost anything to which he directs his attention, providing he is possessed of the dual qualification of faith and hard work.

The candidates who undertook to solve this unscientific problem needed an infinite quantity of faith and hard work.

Percentages as a basis of comparison ought to be calculated on a given base, but here they relate to a statement of experience which does not work out at all, hence the explanation of discrepancy.

It is a well known fact that the examiners, who are all practicing accountants, fall into the greatest temptation to draw upon their own professional experience for difficult problems.

Our problem under review will defy the best accountants in practice to work out within the time limit.

It is all very well to test the candidate's analytical ability, but the test must be scientific, fair, and square, and the examiners should not draw too freely on their professional experiences.

QUESTION 6 (New York). The following trial balance is handed you, with the request that you prepare a revenue account and a balance-sheet: A B's capitai

$20,000.00 A B's personal account

$1,000.00 Bank of North America

600.00 Cash in hand

90.00 Merchandise account

8,600.00 Repair account

87.50 Bills receivable

6,400.00 Bills payable

4,000.00 Real estate

1,350.00 Bank stock

1,566.00 General expenses

1,860.00 Freight

1,000.00 Accounts receivable

8,000.00 Accounts payable

10,000.00 Profit and loss


$34,000.00 $34,000.00 If all the information required is not presented in this trial balance, supply what is wanting and submit the statements called for.




Cost of Merchandise


Gross Profit.

$57,000 32.39%


Cost of Material.

“ Labor.


Gross Profits.


Total Gross.



97,000 27.17%
Net Profit.


357,000 50.7% 49.3% of Sales of $372,000, showing profit of 29.5% would indicate a gross profit of..

Statement of Profits and Losses of the firm of A, B, as on..
Inventory of Merchandise on hand.
Less excess of Merchandise debit side.




Gross Profit...


Losses: Repair account..

$87.50 General expenses.

1,860.00 Freight...

Net Profit for the year..
Deduct debit balance of P. & L. Account.


$3,452.50 3,446.50

Net profit for the period...




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COMMENTS. Any one familiar with C. P. A. examinations will agree with Mr. Jacobsson that examiners draw freely upon their experience for difficult problems, but there would be no great objection to the practice, provided they would present all the facts of the case, and provided, as stated in Mr. Jacobsson's comments, that these facts were scientific and fair. In most of such cases, however, this is not so.

The comparison of profits by means of percentages based upon selling prices is certainly unscientific. To quote Dawson on this subject:

“In taking the selling price as the base, the profit is necessarily included therein-thus the base will vary with the profits, although the underlying motive of comparison by means of percentages is to reduce results to a common base.'

This variation is, moreover, uncontrolled by any principle, being, in the case of a large proportion of profits, entirely disproportionate to the variation caused by a smaller rate of profits. As an instance, 10 per cent. of profit computed upon the cost price is equal to 9 1/11 per cent. when the same result is taken upon the selling price, but if 50 per cent of profits on cost prices be computed on selling prices it will only show 33 1/3 per cent. Furthermore, as the selling price is composed of the cost price and the profit, the latter cannot exceed the selling price, from which it follows that a profit based upon selling prices cannot equal or exceed 100 per cent.; if the goods have cost anything at all.

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