3. The National Manufacturing Co., has an authorized capital of $100,000.00 of which $60,000.00 is paid up and $40,000.00 unsubscribed. It is decided to permit employes to subscribe for $10,000.00 of the stock by paying 10 per cent in cash, all dividends declared to be applied to the payment of subscriptions. What entries are made when this stock is subscribed for? A 10 per cent dividend being declared at the end of the first year what entry is required? 4. The Atlas Novelty Co. has a capital stock of $50,000.00. All of the stock has been subscribed for, but only 40 per cent has been paid. A surplus of $10,000,00 has been accumulated. It is desired to reduce the stock to $25,000.00 full paid. What is the necessary proceeding, and what entries are required? 5. A company has a capital stock of $50,000.00 full paid, and a surplus of $11,172.00. A stockholder who owns $7,000.00 stock in the company wishes to dispose of his stock and, to secure cash, offers to sell it to the company at par. His offer is accepted and the stock purchased, but the company does not wish to reduce its capitalization. What is the entry? RESERVES AND THEIR TREATMENT =44.= A reserve is an amount retained from current earnings to meet a future contingency. According to a prominent authority whose recent discussions of this subject have attracted attention, _a reserve is an expression of the judgment of the accountant as to what amount will be necessary to meet a contingency_. Reserves are created for many purposes, among which the following are good examples. _Reserves for bad debts._ An amount--usually a stated per cent of accounts receivable--annually set aside to cover losses from uncollectable accounts. _Reserves for depreciation._ The plant--buildings and machinery--will wear out, no matter how substantially built. A charge is made against current earnings to create a reserve which will provide for a renewal of the plant, or any part of it, when worn out. Separate reserves are usually maintained for buildings and machinery. _Reserves for Patents, Franchise, Goodwill_ and similar fictitious assets. An annual charge of an amount sufficient to extinguish the value at which the fictitious asset has been placed on the books. _Reserves for permanent improvements on leased property._ Permanent buildings, title to which will revert to the lessor at the expiration of the lease, are sometimes erected on leased property. A reserve is created to absorb the cost of such improvements during the life of the lease. _Reserves for buildings in hazardous undertakings._ In certain lines of business, manufacturing plants are erected with the expectation of having a permanent supply of raw material. If the supply gives out, the plant may be valueless for other purposes. Examples are oil wells and mines. A reserve is created to absorb the cost.