following depreciation rates: frame building, 5%; machinery, 81⁄2%; office furniture and fixtures, 5%; brick building, 2%; auto trucks, 25%; small tools, 122%. These rates are to be applied retroactively.

(b) Compute the amount of depreciation deductible for 1923.

61. The reserve for bad debts of the X Company has been analyzed as follows:

Of the accounts receivable unpaid at the end of 1922 it is estimated that $3,200 will prove bad; $200 pertaining to old sales made prior to March 1, 1913; $850 to 1918; $1,020 to 1919; $460 to 1921; and the balance to 1922.

Suggest such changes in the reserve as you may think necessary and prepare a statement of the deduction that may be claimed in the 1922 return.

62. A, an individual, wishes to be informed as to the

possibility of deducting the following losses in his 1924

return:

(a) Loss from sale of stock of the R Company. He owned 105 shares which had been purchased in 1919 at 110, and sold them September 1, 1924, at 75; on September 15, he purchased 70 shares of the same stock at 70.

(b) Loss from sale of stock of S Company. One hundred shares were purchased in January, 1924, at 200, and 50 shares April 3, 1924, at 180; the 50 shares were sold April 16, at 50.

(c) Loss from wager on World's Series, $50.

(d) Loss of overcoat left in reception room of doctor's office, $75.

(e) Stock of the Whale Oil Company (10 shares); cost, $1,000. Principals of company cannot be found. In addition he shared in 1924 the expense of sending an investigator to the reputed location of the oil field in Mexico, $56. The whole transaction was possibly little less than a confidence game. The stock cannot be sold.

(f) Loss of automobile kept in public garage and destroyed by fire; cost in 1922, $2,000; insurable value in 1924, $1,285; recovery from insurance company, $1,200. The car was used for pleasure purposes only. 63. The Profit and Loss account of B, an individual, for 1926 was as follows:

Income from Lease Rentals...

Depreciation on Lease (lease running for 20 years, dated
January 1, 1915, held by Judson Coal Company; 5%
on $100,000, the March 1, 1913, value and the dis-
covery value as of July 1, 1914. The land was pur-
chased as a farm in 1910 for $10,000 and a partial
discovery of the coal deposits made in 1912 would
make the land worth $10,000 at March 1, 1913, and
the deposits $40,000. Further discoveries were made
in 1914 of additional deposits worth at least $60,000
more, the cost of the second survey being $800. The
value of the land will not be materially depreciated
because of the mining operations)..
Contributions

$5,000.00

1,200.00

$3,647.80

What deduction for net losses should he have claimed in

his 1926 return?

64. MERTON D. PARKS-Trial Balance-Personal Books, December 31, 1923

4 Amount Due from Lloyd Parks' Estate.. 18,726.90

5 Interest in Partnership of Parks and Hines 382,115.43

6 Anson Jones and Company....

45,140.76

7

Bank Loan (secured by Municipal Bonds,

held throughout the year)..

$ 15,000.00 15,846.50

3

4

2 "Stocks and Bonds" is a controlling account, supported by a card ledger. From the controlling account the following details are obtained:

Balance, January 1, 1923 (cost)
Stock and Bond Purchases-Year 1923-

including acquisitions in (d) and (6)
Sale of Barker Sales Company Stock and
Rights; details as follows:

(a) Sale July 6, 1923-100 shares at 55.....
(b) Two hundred shares of this stock were
purchased in 1910 at 124 and had a
fair value at March 1, 1913, of 150; in
1918 a stock dividend of 100% was de-
clared and paid and on February 27,
1923, a 5 to 1 stock right, permitting
the acquisition of 80 shares for $50.00
each, was sold for a total of.....
(c) Sale of bonds of the Reetz Corporation-
July 6, 1923-3 $5,000 bonds..

These bonds were purchased in 1911 at
par and had a fair value at March 1,
1913, of 105.

(d) Sale of stock of Hanley Manufacturing
Company-

Acquired by gift in February, 1923, and
sold December 27, 1923; 100 shares at
110; the stock cost the donor 140 in
1918 and was put on the books at that
figure

On December 28, 1923, 50 shares of the
same stock were reacquired at 108.

(e) Sale of stock of Enigma Cover Com

pany

150 shares acquired in 1918 for 100 and
now sold for 300....

Balance, December 31, 1923 (per trial
balance)

Totals

.$298,576.15

33,450.00

$ 5,500.00

640.00

15,300.00

11,000.00

45,000.00 254,586.15

$332,026.15 $332,026.15

Of the notes receivable, probably not more than $20,000 will be collected, and the remainder, which are business loans and not debts "forgiven," may reasonably be regarded as a loss for 1923. Because of the uncertainty as to the particular notes which cannot be collected, a reserve for bad debts should be created.

The amount due from the estate and the amount re

ceived July I consist of the following items. Mr. Parks has a life interest of one-half in the estate.

5

6

The partnership of Parks and Hines is a trading business to which Mr. Parks devotes about one-half of his time. The fiscal year of the partnership ends October 31, and the amount credited as his distributive interest represents his share of the profits for the year ending on that date in 1923, as shown in Item 23. The partnership owns stock in a corporation, and Mr. Parks' share of the dividends during the year which are included in the income taken up on the books were: cash dividends, $3,450; stock dividends, $6,000, declared October 1, 1923, and payable (and actually received) on November 12, 1923. The yearly profits of the partnership are added to the investment account, while withdrawals are subtracted therefrom.

This is a marginal account with investment brokers, the balance of stocks owned at December 31, 1923, being $10,156.24; this balance is carried in Item 2 and has been shown in the above analysis as "purchases." The monthly statements for the year were examined and it was found that all income recorded therein had been carried to Item

Balance, January 1, 1923...

Cash Received during year.

Stocks Purchased (including commissions)...$124,673.80

Stocks Sold (cost $132,640.70 and all pur

chased subsequent to January 1, 1922)...

Transfer Tax on Sales...

Commissions on Sales.

Interest on Monthly Balances.

Dividends Received

Balance, December 31, 1923.

Total

$ 21,623.45

10,000.00

143,881.69

48.00 849.50

523.16 4,840.00

55,297.00

$180,868.30 $180,868.30