The recommendations contained in the Report of the Chamber of Commerce Committee, and approved by the Chamber, should be carefully studied by every public accountant. The Committee recommends that either a central bank of issue be created, the government having control of its management, or that national banks whose bond-secured circulation amounts to at least 50 per cent. of their capital, be permitted to issue a certain amount of additional notes without further deposit of bonds, these additional notes being subject to a graduated or increasing tax. Recognizing the fact that the usefulness of bank checks is due largely to their constant and certain redemption at clearing houses, the Committee recommends that numerous clearing houses or redemption agencies be established for bank notes. This work might, of course, be done by the banks themselves, but possibly the Committee's recommendation that it be done through the Government Sub-Treasuries, is the more practicable. The expense, of course, would have to be borne by the banks. The recommendations of the Chamber of Commerce Committee, if carried into effect, would result in a limited issue of what is known as asset currency, namely, bank notes secured by the general assets of the bank rather than by a special deposit of collateral. Many people look with suspicion upon notes of this character, and are prone to stigmatize them as "wild cat' currency. It should be borne in mind, however, that bank notes of this sort are issued in other countries, and that they are proving just as good and safe as national bank notes, while also possessing that quality of elasticity which the national bank note utterly lacks. Reviews of Corporation Reports. Conducted by THOMAS WARner Mitchell. Corporate control is of three kinds, viz.: (1) the control exercised by the stockholder, (2) the control exercised by the board, (3) the control exercised by the officer. The purpose of accounts and reports is to make control intelligent. Do the reports rendered to stockholders contain such information as will enable them to exercise intelligent judgment with respect to the fidelity, efficiency and economy of corporate trustees and agents? This is the viewpoint of criticism and analysis appearing in this department of THE JOURNAL. The Reports o the Chicago, Rock Island and Pacific Railway Company. The reports of this company have been chosen for review for two reasons. In many respects the report for the year ending June 30, 1906, is a model in contents and form of presentation; it contains nearly all the information which a stockholder will need and desire, and presents that information in the form required, thus saving the investigator a great deal of numerical manipulation. These reports are of interest, further, because of the information they may yield as to the character of the management, especially as to maintenance of the road and equipment, since control of the company was taken over by the present interests in 1902 and the dividends were largely increased in order that the controlling company might pay interest and dividends on its several issues of collateral trust bonds and stocks. The report for 1906 contains a comparative income statement for the years 1905 and 1906. From the reports of several years the following comparative income statement is made up. The statement for 1903 is for fifteen months, the end of the fiscal year having been changed from March 31st to June 30th; the statements for 1901 and 1902 are for the years ending March 31st; those for 1904-1906 inclusive are for the years ending June 30th. The large increases in absolute amount of gross earnings and operating expenses do not tell much because they are accompanied by similar increases in the mileage operated which largely represent the acquisition of the Burlington, Cedar Rapids and Northern, the Choctaw, Oklahoma and Gulf, and other lines as well as the construction and leasing of new mileage in the southern Mississippi and plain states. More information can be obtained by computing the average gross earnings and operating expenses per mile of road operated; but this can be done to better advantage after the maintenance allowances have been investigated. Other notable features are: the rapid increase in fixed charges, which have more than doubled since 1901; the large proportion which "Other Income" bears to "Net Income," and its importance as a source from which to pay dividends; and the narrow margin of income above fixed charges and dividend requirements in 1904 and 1905. These will be dealt with later. STATEMENT OF EARNINGS AND EXPENSES FROM 1901 TO 1906 INCLUSIVE. 1901 1902 9,195,819 1903 1904 1905 1906 $44,051,509 $51,237,858 31,058,209 35,067,059 17,186,636 9,786,363 10,400,804 6,028,198 4,733,109 6,785,832 *All appropriated for "special improvement and equipment fund." These reports are of great interest to the holders of the Chicago, Rock Island and Pacific Railroad Company's collateral trust bonds which were issued in 1902 in payment for the Chicago, Rock Island and Pacific Railway Company's stock (the company whose reports are now being considered). These bondholders were the Railway Company's stockholders and are still potentially its stockholders. Having seen the net financial result, they are next interested in ascertaining its accuracy. They are especially interested in the expenditures for maintenance. If these are too small, then the road is suffering and their security is being undermined in the Railroad Company's endeavors to pay interest not only on the above named bonds but on the bonds issued in the purchase of the 'Frisco stock as well. If the maintenance allowances have been adequate, then these bondholders have less grounds to fear the present management. The following data will furnish us with some idea as to the maintenance policy of the company. Maintenance of Freight cars per mile run. .0063 .0068 .0083 .0083 .0069 .0046 .0039 .0048 .0056 .0059 Most of the data is not given in just this form, but a little numerical manipulation will yield it. Most of the information is stated in the form of total values for the year; these divided by the average miles operated during the year will yield the average amounts stated in the table. The miles of rails relaid were stated in the reports for the years 1905 and 1906; the reports for other years merely state the tons of new rails relaid; the latter are reduced to miles by dividing by 125.71, the number of tons of 80-lb. rail necessary to lay a mile of single track. The average maintenance of locomotives per mile run is obtained by dividing the total allowance by the total number of miles run by locomotives during the year, both of which are stated in the report. Maintenance of passenger and freight cars per mile run is obtained similarly by using total passenger car mileage and freight car mileage as divisors. An examination of this table reveals the following facts. With the exception of the year 1905, the total allowances per mile of road for maintenance of way and structures since 1902, have been as great as, or even greater than the allowances for the years 1901 and 1902, the latter being the date of the change in management. All of these, except the figure for 1906 are under the 1000-dollar limit; in this, however, the Rock Island has the companionship of the Northwestern and the St. Paul, two roads somewhat similarly situated. The large increase in this item for 1906 over 1905, is accounted for in part by the heavy expense incurred in the substitution of 85-lb. rail for lighter rails, and in the greater renewals of ties and repairs to roadway. The repairs to roadway per mile since 1902 have been much greater than before. The renewals of rails and ties, however, have been much less. In 1906, 503.95 miles of new steel rails, 485 miles of which were 85-fb.rail, were laid down to replace old rails; it is to be noted, however, that 60 per cent. of the cost of this was charged to Capital through the“ Additions and Improvements account, and not to maintenance. If the cost of the entire 503.95 miles were included in maintenance charges, however, the average for the last three years would be only 223.58 miles per year or about one thirtysecond part of the entire average mileage operated. This proportion seems wholly inadequate; other strong roads are allowing only ten to fifteen years as the average life of a steel rail. During the same time the company has been replacing an average of about 224 ties per mile of road, whereas comparative statistics indicate that from 350 to 400 ties ought to be replaced. The allowances for maintenance of way and structures, then, do not seem quite adequate. The equipment, apparently, has been kept in much better condition since the financial readjustment of 1902 than before. Probably 6 cents per mile run would be a sufficient allowance to keep locomotives in good condition, while the allowances for the last two years have exceeded that figure by over 40 per cent. The allowance for maintenance of passenger cars seems small, most roads of similar situation allow about 9 mills per mile run for this item. Between 5 and 6 mills per mile run is the proper allowance for repairs and renewals of freight cars, so that the average allowance for this purpose during the last three years has probably been sufficient to keep this part of the equipment in good condition. The relatively great importance of the item of " Other Income" has been pointed out already. The company's report contains a detailed statement of the securities which it owns and which are included in various items in the balance sheet. It would be well if the securities from which the "Other Income" is derived were indicated as well; this would enable the shareholder to satisfy himself that the railway mileage represented by these securities was not included in the mileage for which the income statements were made up, and, therefore, that the Other Income" was not already taken account of in "Net Earnings." The total par value of securities owned but not represented in “Cost of Property and Franchises was, for the year 1906, $38,757,094.29, with a book value of $18,697,510.72. All but about $6,750,000 (face value) of these consisted of the stocks of depot, terminal, transfer, stock yards, elevator, coal mining companies, and a large block of the Chicago and |