The sun. [volume] (New York [N.Y.]) 1833-1916, 1914-03-07

Puget Sound limo was opened for reg
ular commercial trdiiic OH August l. 1909.
Us first annual statistical report was
filed with the commission for the eleven
months ended June 80, 1910 During
that period the road moved large rev
enue traffic and at the same time was
engaged In completing the construction,
more particularly of its branch lines
In consequence of this condition of af.
fairs expenditures for construction were
made while expenditures for operations
were also going on In accounting for
these two classes OF expenditures for en-
tirely different purposes large amounts
were Included In the cost OF construction
that should have been entered UP M ex-
penscs Of operation.
InAati0n Of Property Account.
This course resulted In an imitation of
the property account and ut the same
time made AN unwarrantably good show
Ing of the returns from operation. The
net income was also overstated by In
Guiding In the cost OF construction GER
tain interest items accruing after August
!, 1909. when the road was opened for
public service
Under our rules and regulations this
interest should have been charged to in
come and this departure from our regu-
lations alone involved nearly $500, 900 Of
error In the report OF the Puget Sound
company Tor tnat year.
Moreover. revenues were overstated BY
including charges for the transportatio
OF construction material at rates substan-
TALLY higher than those enacted under
It's published tariffs by the Northern Pa
cinC.
This was done Notwithstanding the
recognized practice OF carriers to use
rates OF such materials which represent
only the actual cost OF the service--the
result OF this course was to augment
both the revenues And the cost Of property
accounts.
While overstating those accounts the
Puget Sound company. on the other
hand. included IN its operating expenses
no charges whatever for depreciation OF
It's equipment. Had these different items
been carried to its books In accordance
with the rules and regulations OF the
commission and In conformity with cor
rect accounting practices the income
for the Puget Sound company for that
year. reported at $2.255.&&0.1S. would
have been practically eliminated.
Its dividend OF per cent paid out
OF Income for the first year OF its opera
ton could not have been paid. and with
out this income the st. Paul company
which was practically the sole holder OF
the stock OF the Puget Sound company.
would not have been able TO pay Its
own dividends for the year 1911 out OF its
income. In order to have made the pay
ment in full IL would have been compelled
to resort to Its surplus from previous
years.
Continuance of the Practices.
The unlawful practices Just described
were continued after June 80. 1910, and
the fictitious showing OF income for that
period was used by the officers OF the
Puget Sound company 10 aid In the sale
of its bonds. letter written by the
chairman OF It's board OF directors and
published In the Commercial and FiNdr-
cidi Chronicle OF March is. 1871. con-
isns this statement:
Although the Chicago Milwaukee and
Puget Sound Railway was opened for
traffic only on August l, 1909. Il Is al
ready earning a large surplus over the
interest ON its first mortgage bonds. For
the six months ended December 81. 1910
the surplus income of that company after
the payment Of all charges, including In
tercst on the sl23. 900. o0o first mortgage
bonds. amounted to sl.635,952'
1T should be stated that only s27.l75.-
GOO of these bonds have been sold to the
public. the remainder being held In the
treasury OF the at Paul company"
The commission says that another
violation Of the accounting rules occurred
in the PuEe, Sound companys report Of
property Investment The commission
says:
in its fiscal report 20 the commissi
! the Puget Sound company reported its In
vestment In road and equipment at $780,
'Ss3.sss. and this amount was carried into
our official statistics of railways for the
year 1910.
Our subsequent investigations Of the
accounts Of this carrier show. as II now
admits. that the statement was about
slo0.oo0,0Oo In excess Of the cash invest
ment or the company at that date.
Its officials attempt to explain this by
saying that the laws 81 the state OF
Washington forbade the company to issue
bonds without first issuing capital stock
to an equal amount They assert that
there never was amy pretence that the
stock so Issued represented a cash invest
ment and that II var never disposed Of.
but was retained In the treasury OF the
company with no intention at any time OF
Offering IL to the public.
I'VE have not examined tho laws OF
that state to ascertain how far they may
explain the situation. but the course pur-
| sued was in violation OF the commissions
rules and 10 the extent OF 500. 600. 900
falsiiied the statistical report for that
year officially issued by the commission"