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In the context of the Carter Commission's report, the proposal to integrate the personal and corporation income taxes is part of a larger effort to achieve a more comprehensive tax base for Canada. This broadening of the Canadian tax base allows the commission to think in terms of a corporate withholding rate of 50% to match a maximum rate of 50% on personal income. Apparently there is some belief that a withholding rate on corporations in excess of 50% would have an adverse effect on corporate savings and growth. We question this view. In fact, the main point the present authors wish to make is that, at least for the United States, the complete integration of the corporation profit tax could be achieved independently of other tax reforms and should be feasible even with a corporate withholding rate as high as 70.0%. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to investigate the combined effect of dividend policy and new equity financing decisions on the market value of the firm's common stock. Some basic aspects of a conceptual framework are explored, and empirical tests are performed with year-end 1968 cross sections for two industries, using a well-known valuation model. The results must be considered exploratory, but the method of analysis should prove useful in future investigations. [ABSTRACT FROM AUTHOR]

The article discusses the use of tender offers to stockholders in acquiring companies. One method used to acquire firms is the use of tender offers to stockholders. In the 1960's a distinct trend developed in the U.S. whereby control of a large number of corporations was sought using the tender offer method. The tender offer method is defined as a bid by an outsider to purchase some or all of a firm's outstanding shares for the purpose of attaining effective control. It can consist of an offer by the bidder to exchange stock for stock or to exchange stock for cash. The choice is dependent upon tax consequences.

The article focuses on the theory of capital budgeting and on applying a capital budgeting model in practice. It states that the theoretical presentation of the cost of capital is considerably more complex than that of the rate of return, partly because the cost of capital can be obtained from different sources that cannot be considered in isolation. It suggests that the cost of equity capital can be measured with the determination of the rate of discount required to equate expected future cash flows to stockholders.

The article reports on a study relating to U.S. inflation and public utility inflation in the 1950's. The study indicates that returns to utility stockholders have generally kept pace with inflation. Utility assets constitute 20% of the total assets of all non-financial corporations in the U.S. Total revenue of public utility companies in 1958 approximated 6.9% of the disposable personal income. Public utilities have consumed 40-50% of all new corporate security issues. Experts speculate that the enormous expansion of physical assets combined with the relatively small role of retained earnings creates a dependence on external capital.

This article discusses the factors influencing the outcome of take-over offers of shareholders. The factors considered are the premium included in the offer price in relation to re-offer prices, disclosed net tangible asset backing per share and the reaction of the directors of the offeree company to a take-over offer. No clear relationship was found that existed between the size of premiums included in the offer price and the outcome of the offers. The support of, or opposition to, a take-over offer by the directors of an offeree does not influence the outcome.

This article discusses the use of realization when referring to income or profits and the owners' residual equity section of a balance sheet. This paper argues that the use of realized in connection with income is a misapplication of the realization idea. Deceased estates and other trusts were distinguished from other investors. The object of the paper has been to show that, by removing references to realization of income, income determination rules may be made less complex. If they are made less complex and more consistent, the story told in the income statement will be of greater and more direct use to investors and others, and the survival of the income statement may be confidently expected.

The article discusses various judicial cases. The plaintiffs, stockholders in the defendant corporation, brought suit to compel the directors and officers, also defendants, to return the value of property alleged to have been wrongfully taken. Similar actions, instituted by other stockholders, had been consolidated on motion of the defendants, who moved for dismissal of the present suit under a rule providing for such motion where " there is another action pending between the same parties." The plaintiff consulted the defendant, a New York attorney, with reference to collecting a claim against the executors of a Pennsylvania estate.

This article discusses responsibilities of corporations and their managers as a trustee for stockholders and consumers, from legal perspectives. Directors and managers of modern large corporations are granted all sorts of novel powers by present-day corporation statutes and charters, and are free from any substantial supervision by stockholders by reason of the difficulty which the modern stockholder has in discovering what is going on and taking effective measures even if he has discovered it. The sole function of the corporation, suggestively, is conceived to be the making of profit for its stockholder-members, so that they are the ultimate beneficiaries of the business and of the activities of the persons by whom it is carried on. It is suggested that the legal recognition that there are other interests than those of the stockholders to be protected does not, however, necessarily give corporate managers the right to consider those interests, as it is possible to regard the managers as representatives of the stockholding interest only.

This article discusses several legal provisions of dissenting stockholders under appraisal statutes of the U.S. judicial system. The problem of the dissenting stockholder and his remedies under modern appraisal statutes has been one of conflict between strong and divergent interests. If the corporation, through a vote of the majority, sold all the assets, merged, or consolidated, where it appeared that the majority had exceeded its lawful powers, those stockholders not assenting to the contemplated change might, by prompt action, have the transaction set aside, or they might sue for the value of their shares on the theory that their interest in the corporation had been converted. Some courts talked about a conversion of shareholder's share, and the remedy given was the value of his stock. For all practical purposes there had been a conversion of the property interest of the stockholder. His share, represented by his certificate, had an ascertainable value represented by definite corporeal and incorporeal property previous to the transaction illegally performed. The main line of inquiry of this article is concerned to the legal right of the dissenter to an appraisal, the difficulties encountered in the application of the statute, the problem of alternative remedies, and the valuation of dissenters' shares.

The article focuses on partnership liability of stockholders in defective corporations. The corporation laws of the various states provide that the consequence of doing certain acts prescribed by those laws is the creation of an artificial legal person, known as a corporation, and that other persons may contribute to the capital of such a corporation and share in the profits derived from its activities without incurring any personal liability for its debts. It not infrequently happens that people contribute to the capital of such an enterprise on the assumption that the necessary steps for securing incorporation have been taken, but that this assumption proves to be erroneous, with the result that the enterprise, whatever it may be, is certainly not a lawfully existing or de jure corporation.

This article focuses on recent court rulings. In one case, the receiver of the First National Bank of Florence filed a petition for authority to sell the assets of the insolvent bank. The assets were to be divided into two classes: one group to be sold outright to the purchasing bank and the other to be collected by the new corporation for the benefit of the creditors of the insolvent bank. It was held that the court had no authority to order the sale because it exceeded the statutory powers of the receiver. In the case of Central National Bank v. Sutherland, a Nebraska statute taxed shares of capital stock in banks at a mill rate and taxed other moneyed capital at only 25 per cent of that rate.

This article discusses the taxing power of the states in the U.S. Mr. Justice Field's remarks about property taxation in The Delaware Railroad Tax must be regarded as obiter, since he had previously stated that the tax before the court was not a tax on property, but one "upon the corporation itself, measured by a percentage upon the cash value of a certain proportional part of the shares of its capital stock." It is to be inferred that the tax, if one on property, would have been held to be faulty because of the method by which the amount of property in Delaware was determined.

The article discusses the results of a study made by a Sub-Committee of the Corporate Information Committee of the Financial Analysts Federation to the general adequacy and comparability of the annual shareholder reports for 1962 of 20 representative stock life insurance companies in the U.S. The report contains ratings scored on the content of the company reports in three areas with values assigned. The report found that half of the reports analyzed that most minimal standards should not be called stockholders' reports and of the 20 companies only 4 had complete income statements. It is also found that balance sheet statements were uniformly good, but only 9 companies published a complete surplus reconciliation statement explaining the year-to-year changes.

In 1964 Myron Gordon hypothesized that business managers can be expected to select those measurement and reporting rules which smooth periodic net income. Normal income and smoothed earnings were defined with considerable rigor. The smoothing hypothesis was tested by considering whether an accounting measurement rule was selected which tended to: adjust the firm's percentage change in earnings per share to the average percentage change in the industry or smooth the firm's earnings per share toward a normal value or smooth the firm's rate of return on common stockholders' equity. The dividend-income basis is particularly open to manipulation. Parent company management may wait until the very end of an accounting period, approximate the size of the parent's earnings, and then arrange to have the subsidiary declare or pass dividends in such magnitudes as to move reported net income in some sired direction. Management's ability to manipulate reported parent profits in this situation is eliminated under two alternative accounting methods for recording subsidiary operations. These methods are consolidated reporting and unconsolidated reporting under the equity method.

Accountant and economist are a sensible combination on matters of income determination, as Professors Robert L. Dickens and John O. Blackburn demonstrated, that their several-pronged analysis demolishes the case for replacement cost as an ingredient in accounting net income is, however, deserving of a demurrer. This present article is a criticism of their criticism, the purpose being to return the argument to what the economists regard as its proper grounds. The criticisms embrace three areas, methodology, economic theory, and accounting theory. The methodological criticisms are, of course, general and independent of the subject matter treated. The criticisms on economic theory refer primarily to economic concepts which underlie many of the questions discussed by Dickens and Blackburn and are, of course, specific to economic theory and its applications. The criticisms on accounting theory are principally concerned with the charges, both express and implied, by Dickens and Blackburn that the use of replacement cost is incompatible with the informational needs of stockholders, and significantly less conventional than the use of conventional accounting, thus being an invitation to easy manipulation of accounting data by managers.

Recent researches' have emphasized that accounting exists to communicate in summary form those economic events affecting the reporting unit. Accounting is not an end in itself, but simply a method of bridging the gap between an economic unit, the entity, and some party or parties, either internal or external, who require information about these events. Thus, the utility of an accounting system is not derived from its elegance, but rather from its ability to communicate the relevant data. The idea that accounting is designed to report economic data to those groups desiring it is important for two reasons. First, and more basic, the accounting system ought to be designed to meet the informational needs which led to its creation. Second, the term economic data is used to denote data which are useful in decision-making and for control. The purpose of this paper is therefore, twofold. First is to stress the need for utilizing such an approach in accounting reports. Second, to illustrate how such an approach can be implemented in a specific instance, the presentation of common shareholders' equity on the balance sheet.

Tax allocation procedures used today produce inconsistent treatment on the balance sheet. When the asset's accounting basis is greater than the tax basis as the result of differences in timing, a credit must be carried on the balance-sheet. This credit has variously taken the form of a liability, a reduction in a fixed asset , a reduction in a deferred charge, or even an allocation of retained earnings. As previously mentioned, the major difference has been that due to depreciation. Here, the general practice has been to show the resulting credit as a non-current liability. To many accountants, this treatment is a distortion of the facts. At the moment of liability recognition for accounting purposes, no liability seems to them to exist. The liability may never come into existence, or its amount may be greater or less than the amount originally booked. An acceptable, but not widely followed, alternative has been to credit the accumulated depreciation rather than the liability account in these circumstances.

When treasury shares are acquired, the transaction results in the reduction of contributed capital, legal capital remains the same, and the restriction of retained earnings. If legal aspects are to be demphasized, it appears that the "direct adjustment to capital stock" is the best solution. But even though legal requirements are not ranked first in importance, they should not be forgotten. In this case, perhaps the "indirect adjustment to capital stock" is a better alternative. Accounting recognition must also include balance sheet classification as to Stockholders' equity. Differences in state laws would require a different arrangement. However, in both cases total invested capital remains the same. If a temporary restriction of retained earnings is needed, it can be shown in a footnote or as an appropriation of retained earnings. In a state which requires a permanent reduction of retained earnings, the nature of the transaction is a dividend rather than a "retirement." And so it must be recorded as a dividend. The nature of the transaction must be given first priority in recording treasury stock. Then, any legal aspects may also be satisfied in statement presentation.

The article examines the development of the stated capital concept in an attempt to gain better understanding of the legal view of permanent capital. The discussion begins with an investigation of the trust fund doctrine and extends to the major modifications in the concept of legal capital down to the present day. Stated capital is a legal limitation on stockholder withdrawals. As defined in law it is an absolute quantity, capable of direct computation, and not a residuum. Since only surplus beyond this amount generally is available for charges resulting from dividend declarations, creditors are provided a buffer which absorbs losses in asset values in the event of an insolvency. The stated capital concept is the cause of many differences between accounting and legal views of corporate net worth. In law, stated capital is determined by statutory formula and does not necessarily equal aggregate par or stated value of outstanding shares. In some instances, a stock split, reverse stock split or other similar capital readjustment does not result in a reduced stated capital, even though the aggregate par value of outstanding shares after the transaction is less than the former par or stated value aggregate.

This paper emphasizes these points: 1. The minority interest is a stockholder equity interest and should be shown as such. 2. The variety of classifications presently used in showing the minority interest indicates that doubt exists as to its nature--liability, quasi-liability, or stockholder equity. 3. If the majority interest point of view is adopted, statements can be prepared from this standpoint and the minority can be brought along as a special stockholder equity interest. 4. Particularizing the minority share in retained earnings appears to be unnecessary since the total earnings is the same in the method described, and control over its disposition remains in the majority. [ABSTRACT FROM AUTHOR]

Accounting analyses and generally accepted accounting practices have been influenced to a considerable extent by the law. The article presents a report of the survey of the legal literature to determine the extent to which those in the field of law have accepted the concept of the corporation as a legal entity, which has an independent existence quite separate and distinct from its officers and stockholders and the extent to which other concepts have been advocated. Because the significance of a legal concept ultimately depends upon its application in arriving at judicial decisions, the survey induced the examination of cases where the court's concept of the corporation was a material factor in arriving at its decision. The results of the survey suggest that considerable caution is warranted in the evaluation of the acceptability of accounting procedures that hinge upon a particular legal interpretation. Specifically, the results of the survey suggest that the acceptability of accounting analyses cannot with confidence be based entirely upon a particular legal concept of the corporation.

Earnings may be retained for a variety of reasons, some obvious and definite, others more difficult to analyze and to measure. Faced with the need to reflect information about the retention of earnings on financial statements, accountants have resorted to the use of reserves to accomplish this task. According to John A. Beckett retained earnings can be subjected to critical analysis for the benefit of management and other interested parties by indicating the reasons for retention of undistributed earnings. The normal problem of replacement is accentuated when a decline in the purchasing power of the dollar takes place. Since the subdivision of retained earnings will reflect both past accomplishments and future plans, it is doubtful if in many cases the un-appropriated balance will be large enough to warrant questioning by the Tax Department under the accumulated earnings tax provisions. This assumes, that the corporation presents substantial and acceptable evidence of serious intent to support its functional breakdown of retained earnings.

More than six years have passed since the Subcommittee on Terminology of the American Institute of Accountants recommended the discontinuance of the term surplus in accounting. This pronouncement has had considerable effect in accounting circles, and a definite trend away from the use of the condemned term can be perceived. It is true the economic meaning of surplus is different from its accounting signification. To the economist, surplus represents unearned income due to the inelasticity of the supply of any productive factor, conceptually more or less the same as the economic rent of land. The literature of both professions contains many articles comparing the dissimilar meanings of homonymic words common to the two disciplines, so that no student of either should be unduly misled by a different signification of the term surplus in the other profession. Certainly the economist has no greater claim to use of the term than has the accountant. With reference to the problem of the inclusion in capital or paid-in surplus of premium paid on capital stock, the major discussion in the legal decisions revolves around whether such premium on stock is available for dividends, each case interpreting the statute of a particular state.

The article discusses different problems introduced into accounting by the tendency of the monetary unit to undergo almost constant changes in meaning. There are many aspects of the overall problem that, although they are frequently neglected in the current discussions of accounting under conditions of changing prices, appear worthy of additional attention. In many cases these deal with basic ideas that are often ignored by the critics of current methods in their attempts to reach a quick solution to outward manifestations of the problem. One of these fundamental, but neglected, ideas is that pertaining to the accountants' responsibilities towards debtors and creditors. Inherent in the discussions of the price level problem, but seldom approached directly, is the question of the relative position of the various types of equity holders. Yet any consideration of accounting procedure must give attention to the effect of the method followed upon the claims of those who supply the capital used in business operations.

The article discusses modifications made to a family tree introduced by scholar Lewis A. Carman in 1932. He used the tree to analyze the use of equity ratios in distributing the combined capital stock and surplus on the balance sheets of companies affiliated by both unilateral and bilateral common stockholdings. The family tree is adapted very slightly to have it obey some modem principles of family tree construction like arrows point with the force of authority, percentages of ownership and separate family trees are made for each class of stock. In 1948, the use of equity ratios was extended to the preparation of income and surplus statements involving both common and preferred stockholdings, and a mechanical method of calculating the equity ratios was introduced for use after the ratios of the bilateral groups have been computed. In 1949, a new formula for computing the equity ratios for bilateral stockholdings was developed in an advanced course in consolidations at The University of Texas by Myles Joseph Aaronson. The new formula is very simple to use because the determinant aspects cancel out leaving an equation, which enables anyone to handle the most difficult cases of mutual stockholdings, by using only simple arithmetic processes.

This article focuses on the problem of communicating accounting information. The transmission of the information accumulated and condensed in the ledger accounts has always been a problem. Decision must be made as to the basic types of information to be included in the reports, the extent of the detail or condensation of the information, the classification of the information, the form and arrangement of the information in reports, and the terminology to be used. Since the general public is not well grounded in accounting matters, the accountant is faced with the task of making the reports intelligible. This is difficult as the accountant uses so many words in a technical sense which are already in general usage with various shades of meaning. The layman, when he sees a report in which familiar terms are used; will quite naturally believe that he understands the report. A variation of the above approach to making statements more intelligible is to use pictures, charts, and diagrams to supplement or as a substitute for the technical terms. Pictures of the various assets may be placed on the balance sheet; bars representing the total income may be segmentized to show the various expenses and the net profit; the profit retained in the business, paid to stockholders, and paid to the government in the form of income taxes may be illustrated by a pie chart; and trends in income, expenses and profits may be shown by charts.

The article describes stock dividends from the viewpoint of the declaring corporations. The article focuses on three types of stock dividends namely, common on common, preferred on common and common or preferred on preferred. The first of these types of stock dividends, common on common, is of course, the one most frequently met with. It consists of the issue, gratis and ratably, of additional common shares to the common stockholders. Preferred shares issued to common stockholders, constitutes in effect a division or split-up of the total common stock interest into two parts, one of which is converted into, or reclassified as, a prior stock interest, and the other of which continues as the remaining common stock or residual interest. As the number of common shares is not affected by such stock dividend, each of these shares is the same fraction or aliquot part of the net corporate property as before the dividend. Another stock dividend is common or preferred stock issued to preferred stockholders. Strictly viewed, this type includes two sub-types.

Distributions by corporations differ in amount, frequency, and mediums of payment, but all are popularly known as dividends. Some dividends are stated amounts paid at stipulated intervals; such is the case of dividends on so-called preferred stock. Other dividends are unstated before actual declaration by the directors' resolution, both the amount and the frequency of the dividend being left to the discretion of directors in accordance with the contractual terms of the shares owned by the stockholders. This is the usual arrangement under which dividends on common stock are paid. Variation also exists in the medium of dividend payment. The most important medium used is corporate assets, cash being by far the leading specific asset used. Another form is the distributing corporation's obligations, scrip or note payable being the common forms. The third principal medium is un-issued capital stock. Adoption the requisite of realization has introduced another difficulty; it raises the issue of what constitutes realization. Ordinary dividends paid in cash constitute income upon receipt if it be admitted that any realized money gain is income. Money income is the closest practical thing to real income evidenced by consumable commodities and services. This is the chief virtue of income received in cash. However, the receipt of money's worth has come to be recognized as the equivalent of money because the bulk of business claims are not actually liquidated in cash. Thus cash dividends are commonly paid by check which are taken up as income upon receipt.

In considering the effect of a stock dividend upon its recipient it is first necessary to inquire into the fundamental meaning of the terms "income" and "capital," and the distinctions, if any, between income to the corporation and income to stockholders. With a working understanding of these matters in mind, it will then be possible to discuss the nature of stock dividends from the recipient's standpoint. Discussion of economic matters is frequently confused by a failure to distinguish between interpretations of a particular phenomenon in business practice and the underlying facts and principles of the phenomenon as interpreted by economists. The difference lies in the theoretical level at which underlying facts and principles necessarily are kept in the economist's analysis. The theoretical level is used because the assumptions upon which the reasoning rests may not obtain to the degree required for its validation on the practical level. And the economist's assumptions fall short of conformity to reality because they are virtually impossible of full verification.

Questions on treasury stock may be resolved into two fundamental issues, both of which concern the right of a corporation to acquire shares of its own capital stock and which, from that circumstance, are frequently presented without adequate distinction. The right of control incident to ownership is a right which civilization has made an inherent part of itself. "It is mine; I can do with it what I will." This theory applied to the funds of a corporation expresses a natural right of a corporation to acquire shares of its own capital stock. Can a corporation legally acquire shares of its own capital stock? It is understandable that the judges of the state courts during the early years of the nation, having varying degrees of legal education and historic perspective, should have decided this question yes and no. Two contiguous states, whose citizens had very similar social and ancestral backgrounds, took opposing views on this question. In both states the English principles of jurisprudence predominate.

The purpose of this article, concisely expressed, is to present capital stock and surplus relations. Relation can be taken either as expressing the affinity or dissimilarity of one thing to another, of one idea to another, as the word is commonly interpreted, or it may be taken to mean the expression or narration, the relating, of that which has been brought to one's notice, concerning the topic-matter. The second meaning is developed in the following pages. Various contrasts, similarities, or affinities may obtain between things. A selection must be made. The writer has been interested primarily in the legal significance of these relations, and, secondarily, in the effect of the law, thus arrived at, upon accounting. The terms capital stock and surplus are technical terms closely associated with corporations. Hence the boundaries of this article contain at least part of the subject matter of corporations and do not extend beyond. One further limitation of subject-matter may be mentioned. The treatment is very largely confined to mercantile and manufacturing corporations, operating as going concerns.