Inasmuch as railroad accounting officers have for years attended to the affairs of the corporations which they serve in the way for the best interests of such corporations, it is possible that the burden of acting under the supervision of the various commissions may be more seeming than real and that later on, after having become accustomed to government supervision, they will be quite unwilling to have it discontinued; but at the present time it adds greatly to their work and requires that other important matters have to be put aside that some data for the several commissions due on a prescribed date may be on time. Between corporate duties and time consumed in commission matters, mine has been so fully occupied that I have been unable to give the subject of my remarks the attention it deserved.

In closing I feel that I should again remind you of my subject, "Government Supervision," and emphasize the fact that the act authorizes the commission to prescribe the forms of all accounts, etc., but does not seem to me to convey any authority to regulate the manner in which a company may see fit to dispose of its income; and I do not understand that it is claimed by the commission that such authority is vested in it, but that the accounts shall be so kept (only correct information being contained therein) that they may be furnished the data which they require. It is unfortunate that the commission's power has not been better defined in the act, and I do not wish to be understood as contending that the twentieth section of the Act to Regulate Commerce (as amended) has subjected the various classes of carriers mentioned therein to government supervision in its broadest meaning.

The Adjustment of Partnership Accounts.*

BY LEO GREENDLINGER, B. C. S.

PART II.

To adjust partners' accounts when the books have been kept by double entry:

Mr. Whatley in his Accountants' and Bookkeepers' VadeMecum states that frequently in a final adjustment of the accounts the assets are insufficient to meet the liabilities as well as claims of the partners themselves, and in consequence the position of affairs will be one of the following:

(1) Either the assets realized are not sufficient to pay the debts and liabilities of the firm in full;

(2) Or the assets realized are sufficient to liquidate the claims of creditors, but insufficient to repay the advances of partners;

(3) Or the assets are sufficient to pay the debts and liabilities of the firm and the advances of the partners, but insufficient to repay each partner his respective capital.

Accordingly Mr. Whatley proceeds to work out various problems showing how the adjustment should be made in any one of the three possible cases, and adds:

There is no need here to take into consideration a case where the assets realize their full value, for the accounts would be closed in their natural order without any difficulty.

This, however, is not always the case. On the contrary, when accounts are adjusted at a dissolution, unless insolvent, (because then the partners have no benefit in view over which to raise trouble) there will always spring up a number of points over which disagreement will arise in adjusting the final affairs. One partner may claim that he understood this clause in one way while the other will claim a different construction. We will, then, take in addition to the cases mentioned the following

*Submitted to the Faculty of New York University School of Commerce, Accounts and Finance in fulfillment of the requirements for the degree of Master of Commercial Science.

SECOND PROBLEM IN PARTNERSHIP

ADJUSTMENTS.

The assets to have realized their full value, but the retiring partner to be entitled to goodwill, as stated in their articles of co-partnership.

A., B., C. and D. arranged on January 1, 1905, to become partners in a manufacturing enterprise for a period of five years. They signed Articles of Co-Partnership, the latter containing among the ordinary clauses incidental to a partnership the following essentials:

A., B., and C. are each to contribute $5,000, while D. is to bring in the sum of $10,000, the combined capital of the partnership to be $25,000.

Interest at the rate of 6 per cent. to be allowed to any partner whose investment may exceed the sum which he is required to bring in into the business. On the other hand interest at the same rate is to be charged to any partner whose investment is below the required sum. In either case these respective debits or credits are to be carried through the Profit and Loss Account and adjusted to the partners' accounts according to their agreement as regards the division of profits or losses.

Each partner is allowed to draw the sum of $100 per month, which sum so drawn is to constitute a charge to the Salaries Account. This account is to be finally charged up as a loss.

The profits or losses of the business are to be divided in proportion to each partner's capital and the time such capital was employed in the business.

It is the right of each and every partner to ask for a dissolution of copartnership at the expiration of three years from date hereof, provided he gives reasonable notice of such intention to his associates.

If any member of the firm desires to take advantage of the last mentioned clause, he is entitled, in addition to the net balance shown to his account in the ledger, to a quarter of the Goodwill of the business, the latter to be based on the last year's net profits, and to be one and one-half times that sum.

If a partner retires, the remaining partners are not obliged to pay him in cash more than two-thirds of his capital. They may pay the balance by giving a promissory note, which shall not run for more than six months.

The firm of A., B., C. and D. continues in business to December 31, 1907, when D. expresses his desire to retire. The other partners having no objection, an accountant is called in to adjust the affairs of the concern and to prepare the proper financial and business statements, as well as the respective Capital Accounts. Upon examination the following facts are discovered:

While the books have been kept on the double entry principle, the nominal accounts have never been closed, no Profit and Loss Statements were ever prepared, and in some instances errors were made in charging improperly items to Expense which should have been charged to Plant and Machinery.

Upon consultation with the members of the firm, the latter instruct the accountant to prepare yearly statements of their respective standing for the period of their partnership (three years) and then to adjust the accounts as per existing agreement, subject to the following changes concurred in by all members of the concern:

A reserve is to be created for bad debts, $200.00 per year; a reserve is also to be created of $200.00 per year for depreciation; the clause relating to interest charges or allowances is to be ignored entirely as the members believe that each partner has maintained his required investment.

The affairs of the concern as disclosed by the books and information are as follows:

Purchases of raw material during the year 1905 were $29,500.00. Included in this, however, is a return sale of $400.00. Sales during the same period were $57,300.00. Included in this is a return purchase amounting to $200.00. Labor expenses were $11,200.00; rent of factory $1,000.00. Other incidentals in the manufacture were $200.00. The inventory of raw materials was $9,600.00. $1,600.00 was paid in commissions, and $450.00 in sundry trade expenses. Rent for office and salesroom was $600.00. Salaries were $6,800.00. Repairs and renewals to plant and machinery were $275.00. The firm borrowed of the bank $5,000.00, on which there was a discount of $150.00. General expenses, such as stationery, printing, etc., were $455.00. The partners' accounts disclose the following state of affairs:

These withdrawals do not include salaries to which the partners were entitled; these were paid monthly and charged through the Salary Account.

In 1906 conditions were as follows

Purchases, $21,700.00. Sales, $61,300.00. Inventory of raw materials on hand at the end of the year, $3,700.00. Inventory of finished goods, $1,200.00. Labor and wages, $15,400.00. Sundry factory expenses, $3,200.00. Salaries, $7,200.00. General office expenses, $450.00. An item of $200.00 which properly should have been charged to the Plant and Machinery Account was incorrectly debited to Selling Expenses. Interest and discount on loans amounted to $150.00. Partners' Accounts remained unchanged excepting that the profits were not actually withdrawn. These had never been determined, and no nominal accounts had been closed.