Harvard’s accounting course was open to both undergraduate and graduate students. It was taught by the Harvard Ph.D. (1913) and instructor of economics, Joseph Stancliffe Davis. The course announcement, enrollment figures, and the final examination questions come from three different sources, all of which are available on-line. Over the next few weeks, I’ll be posting corresponding material from the twenty economics courses offered during the 1914-15 year for which the final examination questions had been printed and subsequently published.
The course syllabus was transcribed and is available in a later posting.
An obituary for Davis written by Joseph H. Willits, “Joseph Stancliffe Davis, (1885-1975)” , was published in The American Statistician 30, no. 4 (1976), p. 199.
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Course Announcement
Economics 1b. Accounting. Half-course (second half-year). Lectures, Mon., Wed., and (at the pleasure of the instructor) Fri., at 1.30; problems and laboratory practice, two hours a week. Dr. J. S. Davis, assisted by Mr. F. E. Richter and —.
This course will deal with the construction and the interpretation of accounts of various types of business units, designed to show the financial status at a particular time, the financial results obtained during a period of time, and the relation between the results and the contributing factors. In other words, it will be concerned with the measurement, in terms of value, of economic instruments, forces, products, and surpluses.
Some attention will necessarily be given to the fundamentals of book-keeping, but emphasis will be placed chiefly upon the accounting principles underlying valuation and the determination of profits and costs. Problem work will be regularly assigned, and published reports of corporations will serve as material for laboratory work. [p. 63]
Source: Division of History, Government, and Economics 1914-15. Official Register of Harvard University, Vol. XI, No. 1, Part 14 (May 19, 1914).
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Course Enrollment
[Economics] 1b 2hf. Dr. J. S. Davis, assisted by Mr. F. E. Richter.—Accounting.
Total 119: 2 Graduates, 62 Seniors, 49 Juniors, 2 Sophomores, 4 Others.
Source: Report of the President of Harvard College, 1914-15, p. 59.
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Course Final Exam
ECONOMICS 1b
- Explain concisely five of the following: —
(a) “a controlling account”;
(b) “charging to capital”;
(c) “a sinking fund”;
(d) “a life insurance reserve”;
(e) “the five normal elements in cost”;
(f) “stores ledger.”
- “The Depositors’ Guarantee Fund of Nebraska is to accumulate up to one and one-half per cent of the average daily [bank] deposits for the whole state, at the rate of one-half of one per cent for each of the first two years, then one-tenth of one per cent until the limit is reached, at which time assessments are to stop. No money is actually paid out by any bank except its proportionate share of losses arising from failures; the assessments are simply charged off from its profits and entered to the credit of the Depositors’ Guarantee Fund, which can be drawn upon by the State Banking Board.”
(a) What journal entries should a bank make (1) when an assessment of $5000 falls due? (2) when at the call of the State Banking Board it pays over $3000 as its share of a loss arising from the failure of another bank?
(b) Should a bank show “ Depositors’ Guarantee Fund “ on its balance sheet as an asset, a liability, or a proprietorship item?
- From the following condensed but essentially complete statements, ascertain (taking each statement separately) the profits earned or the loss sustained during the year. Indicate the title each statement should bear.
(A)
|
Dr. |
Cr. | Assets |
Liabilities |
|
| Real Estate and Plant | $40,000 | $35,000 | ||
| Merchandise | $15,000 | 10,000 | ||
| Accounts Payable | 10,000 | $10,000 | ||
| Cash | 30,000 | 30,000 | ||
| Capital | 60,000 | 60,000 | ||
| Expense | 15,000 | 2,000 |
(B)
|
Jan. 1 |
Dec. 31 | Jan. 1 |
Dec. 31 |
||
| Plant | $80,000 | $70,000 | Capital Stock | $100,000 | $100,000 |
| Receivables | 45,000 | 50,000 | Payables | 65,000 | 75,000 |
| Merchandise | 30,000 | 25,000 | Wages Accrued | 5,000 | 5,000 |
| Cash | 50,000 | 60,000 | Reserve for Ins. | … | 10,000 |
| Int. Prepaid | 5,000 | 10,000 | Surplus | 40,000 | 25,000 |
| (NOTE.—No dividends have been paid.) | |||||
(C)
| Purchases | $100,000 | Net Sales | $130,000 |
| Wages | 10,000 | Interest Earned | 4,000 |
| Depreciation | 6,000 | Commission | 6,000 |
| Interest Expense | 2,000 | ||
| Miscel. Expense | 12,000 | ||
| Proprietor | 10,000 |
- Show journal entries for the first-named concern in each of the following transactions:—
(a) A department store raises cash by discounting at the First National Bank its 3-months’ note for $100,000, at 4%.
(b) Enterpriser having exhausted his personal credit, gets Goodfellow to accommodate him with a $5000 60-day note bearing interest at 6%, which Enterpriser immediately gets discounted at 5%.
(c) Retailer settles a bill of Manufacturer’s dated June 1, for goods listed at $150,000 and sold subject to a trade discount of 20% on terms ” 30 days net,” paying with a note maturing July 1.
(d) A railroad company buys steel freight cars at a cash price of $480,000, but pays for them with an issue of 4% 10-year bonds at 80.
- Balance Sheet, January 1,1915.
| Fixed Assets | $500,000 | Capital Stock | $300,000 |
| Current Assets | 250,000 | Bonds | 300,000 |
| Deficit | 50,000 | Current Liabilities | 200,000 |
| $800,000 | $800,000 |
You are asked what is the capital of a company showing the above balance sheet, which is assumed to be correct. What four possible correct answers might you give? In each case explain what the term “capital” signifies.
- “The prospective investor in railroad securities should scrutinize very carefully any radical reduction in expenses that is made in either maintenance of way or maintenance of equipment; but a reduction in transportation expenses without any falling off in the revenue of the road may be fairly safely accepted as a reflection of increased efficiency.”
(a) Why this difference?
(b) Wherein would the company’s financial statements be falsified by excessive reductions in charges to maintenance?
- “No rate of depreciation is at present prescribed by the commission, and although the companies are supposed to report to the Interstate Commerce Commission the rate which they use, they are at liberty to make this rate as low as they want to and are permitted to vary the rate from year to year. Furthermore, no charge for retirements is necessary until a locomotive is actually scrapped or sold. Let us assume, for a moment, that a road wishes to make a good showing by holding down maintenance of equipment expenses. Cars and engines which have become worn out or obsolete may be put on side tracks and neither scrapped nor sold, but new equipment bought. There is no way in which this can be detected from the maintenance . . . accounts.”
(a) How does this practice enable the roads to make “a good showing”?
(b) By what supplementary statistics, if any, can the practice be detected?
(c) Why should no rate of depreciation be prescribed?
- “As the premium [on a bond] is nothing but the present worth of an annuity of the ‘difference of interest,’ so the various amortisations are nothing but the present worths of the different instalments of annuity.”
Explain the italicized terms and the statement. - What are the principal defects in present-day municipal accounting? What steps have been taken toward improvement?
- State concisely the four most important accounting facts or principles which you have learned in this course. (Accuracy of statement and wisdom in selection will be considered in grading answers.)
Source: Harvard University Examinations. Papers Set for Final Examinations in History, History of Science, Government, Economics, Philosophy, Psychology, Social Ethics, Education, Fine Arts, Music in Harvard College. June 1915, pp. 42-44.
Image Source: Joseph Stancliffe Davis, Harvard Class Album, 1916.