Bennett, R. J.

Van Cleve, C. M.

Watts, Geo. T.

English

eGrove (Univ. of Mississippi)

Journal of Accountancy Volume 16 Issue 4 Article 12 10-1913 Correspondence: Interest and Rent; That the Stockholder May Comprehend Geo. T. Watts R. J. Bennett C. M. Van Cleve Follow this and additional works at: https://egrove.olemiss.edu/jofa  Part of the Accounting Commons Recommended Citation Watts, Geo. T.; Bennett, R. J.; and Van Cleve, C. M. (1913) "Correspondence: Interest and Rent; That the Stockholder May Comprehend," Journal of Accountancy: Vol. 16: Iss. 4, Article 12. Available at: https://egrove.olemiss.edu/jofa/vol16/iss4/12 This Article is brought to you for free and open access by the Archival Digital Accounting Collection at eGrove. It has been accepted for inclusion in Journal of Accountancy by an authorized editor of eGrove. For more information, please contact egrove@olemiss.edu. CorrespondenceInterest and RentEditor, The Journal of Accountancy:Sir: I have been studying the problem on pages 287, 288, and 289 of April, 1913, issue of The Journal. This is a very interesting problem, but there are a few points in the solution which are not quite clear to me. The fourth column, (interest) on page 289, totals up to $4,750, but it seems to me that it should total to $5,000. There is a difference here of $250. The last column, (yearly rent) totals up to $449,750, which amount is also $250 short of the $450,000, stated in the lease.I assume that it is the purpose to show, at the end of the ten years, that the full amount stated in the lease ($450,000) has been paid. But the plan given shows, or at least makes it appear that there is yet $250 due to the lessor.It seems to me that the interest should be figured on the full $25,000, before the $1,250 is deducted, and the interest similarly figured at the end of each period. This, it seems to me, would be correct, because at the end of the first six months, the company has been deprived of the use of $25,000 not $23,750. At the end of the six months, the company applies $1,2 5 0 of the $2 5,000 on its rent, but not until the end of the period. Con­sequently, it is entitled to interest on the full amount for the period. If this is done, the fourth column in the book will total to $5,250, and the rent column $450,250. Both of these columns would then be $250 in excess of the amounts which it is desired to show. This difference can then be spread over the twenty periods, by charging income $12.50, and crediting rent account the same amount, at the end of each period. Since the interest accumulation ($5,250) is $250 in excess of the $5,000, which was assumed in the lease to be the amount of interest, and since rent has been charged and income credited, would it not be correct enough, for all practical purposes, to reverse the process, and take one-twentieth of this amount, or $12.50, away from income each period?The lease does not state if the monthly payments are to be made in advance or not. But since the $25,000 payment was made in advance, I assume that all subsequent payments are not due until the month has expired. While the difference involved is small, I would, nevertheless, like to have your opinion as to the merits of the above suggestion.I enclose an outline of the altered figures.Yours very truly,Geo. T. Watts.Billings, Montana.333The Journal of AccountancyCorrectedHalf Year Int. @ 4% Yearly Rent Corrected Int. Yearly Rent1 $500.00 $22,750.00 $487.50 $22,737.502 475.00 22,725.00 462.50 22,712.503 450.00 22,700.00 437.50 22,687.504 425.00 22,675.00 412.50 22,662.505 400.00 22,650.00 387.50 22,637.506 375.00 22,625.00 362.50 22,612.507 350.00 22,600.00 337.50 22,587.508 325.00 22,575.00 312.50 22,562.509 300.00 22,550.00 287.50 22,537.50IO 275.00 22,525.00 262.50 22,512.5011 250.00 22,500.00 237.50 22,487.5012 225.00 22,475.00 212.50 22,462.5013 200.00 22,450.00 187.50 22,437.5014 175.00 22,425.00 162.50 22,412.5015 150.00 22,400.00 137.50 22,387.5016 125.00 22,375.00 112.50 22,362.5017 100.00 22,350.00 87.50 22,337.5018 75.00 22,325.00 62.50 22,312.5019 50.00 22,300.00 37.50 22,387.5020 25.00 22,275.00 12.50 22,362.50$5,250.00 $450,250.00 $5,000.00 $450,000.00Excess $250.00 Excess $250.00.Editor, The Journal of Accountancy:Sir: The letter from Mr. Watts referring to my solution of question 16 of the last Pennsylvania C. P. A. examination is interesting. His ex­ceptions to my statement of the problem are well taken, and in an actual case I would have little or no objections to the adoption of his plan of distribution. This comment however will be of no benefit to Journal readers without reference to the problem and solution.I showed two ways of handling the entries. In my second solution the consideration of compound interest was omitted, also the $5,000 reduced from the total cost of the lease. Of the prepaid rent of $25,000, I assumed that the first six months’ portion should be charged monthly to this period. This portion of the $25,000 is $1,250 (1/20 of $25,000) and can hardly be looked upon as a prepayment and therefore not entitled to interest as an investment. The amount deferred for application to later periods is looked upon as an investment and therefore an amount on which interest should be taken. Interest at 4% on $23,750 for six months is $475, the amount to be charged up against the first period. This period now includes cash $21,000, 1/20 of $25,000 or $1,250, and $475 interest on the prepayment of $23,750.This is not an ideal solution, but one that would suit the case very nicely without serious discrepancies. The one suggested by Mr. Watts would undoubtedly serve the purpose equally well.Faithfully yours,R. J. Bennett.Philadelphia, Pa.334CorrespondenceThat the Stockholder May ComprehendEditor, The Journal of Accountancy:Sir: I wish to express my thanks to The Journal for the review of my Principles of Double-Entry Bookkeeping which appeared in the August number. The article is in the main unfavorable, but it is written in a not unfriendly spirit and is evidently an honest expression of opinion. I believe that a more careful study of the book would convince the re­viewer that it does really present a new and complete explanation of double-entry bookkeeping, but I do not care to enter into any argument on that question now, being content to leave it to the judgment of the future.But while not wishing to raise any discussion on matters of theory, I do wish to ask the aid of The Journal in trying to bring about a change in accounting practice which would redound to the very great advantage of the whole profession.The only point of contact between the accountant and the public is in the reports which he makes; and unfortunately he always makes his reports in a form which the people in general instinctively recognize as irrational. The form of statement showing assets and liabilities equal makes the language of accounting a jumble of self-contradiction. It makes a reserve liability, which is a contradiction in terms; it makes a deficit an asset, which is a contradiction in terms; it makes surplus a liability, which is a contradiction in terms.Now it is the easiest thing in the world to make the statement in proper form, showing assets, liabilities and net capital separately, if the book­keeper will simply bear in mind the fact that the books of a corporation should be kept from the standpoint of the stockholders, and that he should use the words “asset” and “liability” in the same way that he uses the words “loss” and “gain.” No corporation bookkeeper ever thinks of count­ing an item as loss unless it represents loss from the standpoint of the stockholders, nor of counting an item as gain unless it represents gain from the standpoint of the stockholders. In like manner, he should never count an item as asset unless it represents asset from the standpoint of the stockholders, nor as liability unless it represents liability from the standpoint of the stockholders.Therefore, instead of making his statement by the indiscriminate entry of all debit balances on the one side and all credit balances on the other, the bookkeeper should enter on the left-hand side all items which represent asset from the standpoint of the stockholders, and the total, and on the right-hand side all items which represent liability from the standpoint of the stockholders, and the total, and also the balance, which represents the net capital. He should carry the balance down on the left-hand side and then enter on the right-hand side all the remaining items, those which compose the net capital, giving the totals to show that the two sides are equal.That is all there is to it, and it is so simple that any person of ordinary335The Journal of Accountancyintelligence can do it. Yet simple as it is, if that change is ever brought about it will do more to raise the art of accounting to its proper place in the estimation of the public than anything that has been done since double  entry bookkeeping was invented.Knowing that The Journal is deeply interested in everything which tends to the advancement of the accounting profession, I confidently appeal to it to exert its influence toward effecting a change which will free that profession from the reproach of using irrational language.Yours very truly,C. M. Van Cleve, Brooklyn, N. Y., Aug., 19, 1913.Oregon Society of Public AccountantsAt the annual meeting of the Oregon State Society of Public Ac­countants the following officers were elected for the ensuing year:President, E. H. Collis; vice-president, Alex C. Rae; secretary and treasurer, H. A. Moser; directors, Arthur Berridge, W. R. Mackenzie, John Y. Richardson and William Whitfield.AnnouncementsWilliam F. Morris, C.P.A., B. DeF. Baird and Charles U. Martin an­nounce the formation of a partnership for the practice of accountancy under the firm name of Morris, Baird and Martin, with offices in the Commonwealth Building, Philadelphia, Pa.Pace & Pace announce that Frederick M. Schaeberle has been admitted to the partnership as of September 1st, 1913.P. A. Eckes, C.P.A., Richard Fitz-Gerald, C.P.A. and W. N. Dean, C.P.A., formerly of the firm of Perley Morse & Co. New York City, have opened an office under the name of Eckes, Fitz-Gerald & Dean at No. 141 Broadway, New York City, and a branch office in the Wilson Building, Dallas, Texas.J. Lee Nicholson, C.P.A., has been appointed instructor in cost account­ing at Columbia University in the City of New York.William B. Johnson, C.P.A., has removed his office from 277 Broad­way to 43 Cedar Street, New York.336

Correspondence: Interest and Rent; That the Stockholder May Comprehend

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Correspondence: Interest and Rent; That the Stockholder May Comprehend

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