Cheryl McWatters McGILL UNIVERSITY

THE EVOLUTION OF THE PROFIT CONCEPT: ONE ORGANIZATION’S EXPERIENCE

Abstract: The accounting innovation and change literature has emphasized the contingent relationship between the accounting system and a variety of environmental forces. This paper utilizes a longitudinal analysis to evaluate this contingent relationship within one nineteenth century organization, The Calvin Company. The results generally are consistent with most findings from the literature. In particular, the study examines the shift in the profit concept to a shortversus a longterm perspective. This has parallels with the emerging role of the corporate form of business organization and the entity, as opposed to, proprietary view of accounting.

The accounting system shaped the organizational reality to the extent that the accounting for an event had a subsequent impact upon The Calvin Company’s direction. The conclusions highlight the contextual nature of accounting. Accounting and accounting change must be interpreted in terms of the underlying developments within the entity, and within its external environment.

The accounting change and innovation literature has become the focus of research in accounting history [Bhimani, 1993; Edwards, 1991; Hopewood, 1987]. The present study examines accounting change within the context of one Nineteenth Century organization, specifically the environmental factors related to the shift in the profit concept from a short versus a longterm perspective. The significance granted to the profit concept evolved in tandem with The Calvin Company’s adaptation to the changing business conditions of the nineteenth and early twentieth century. A major aspect of the latter was its adjustment to the corporate form of business organization. The paper begins with a chronology of The Calvin Company (TCC) followed by a literature review, the research framework, analysis, conclusions, and interpretation.

The author gratefully acknowledges the helpful comments of D. B. Thornton, the editor, and the anonymous reviewers, and the research support of the Social Sciences and Humanities Research Council of Canada.

A CHRONOLOGY OF THE CALVIN COMPANY

TCC began operations in the 1830s, growing in scale and scope throughout the nineteenth century to include (among others) shipbuilding, wrecking operations, and towing services.1 TCC’s business enterprises encompassed the several stages along the supply chain to meet the market demand for primarily oak timber and, to a lesser extent, staves. Given its varied activities, represented schematically in Appendix 2, TCC’s information requirements would differ at alternate points along the supply chain.

At the supply end, TCC had to decide whether to make or buy its timber, to act solely as a forwarder or to sell also on its own account, and how to administer its joint ventures and to finance its operations overall. On the demand side, TCC had particular information needs, for example, to sell its timber at Quebec or to ship it directly to Great Britain. Acting as a commission agent, TCC rafted much timber at the risk of other owners. Thus, it had to determine when it was best to sell, taking into account market conditions, possible commissions and the potential competition created by its own timber. As well, TCC had to weigh the strategy of contracting to sell its upcoming production (a precursor of futures contracts) against taking its chances on the open market.

In 1836, D. D. Calvin moved his base of operations from Clayton, New York to Garden Island, near Kingston, Canada. Garden Island offered a strategic location with a good harbor for both timber storage and raft construction. Timber and staves first were shipped to Garden Island before subsequent rafting to Quebec, with the rafting season running from late April until November. In 1839, Calvin entered into a partnership with John Counter and Hiram Cook, formalizing an existing string of joint ventures. During this early period, financial concerns predominated as the timber market was slow and credit was tight. Moreover, the partners had conflicting opinions about the advisability of continued timbercutting during a low market (increasing their risk and holding cost) versus the shipment of timber to Garden Island to keep its vessels in operation. Counter, discontent with TCC’s activities, withdrew from the partnership at the end of 1843 and the business was reorganized as Calvin, Cook & Company. At this time, C. E. Dunn entered the firm. The new partnership did not operate without discord and T. H. Dunn replaced his brother at the end of 1844. Subsequent internal debates resulted in a major restructuring of the firm and a new partnership with T. H. Dunn commenced on January 1, 1847.

The period from 1845 to 1850 saw the rise of economic liberalism in Great Britain, which brought both the loss of colonial preference and responsible government to the colonies. The end of tariff protection in 1846 did not reduce immediately Canadian exports of hewn timber, due to the concurrent upswing in British demand and the gradual elimination of duties. However, a rush to get shipments to Great Britain before the loss of preference resulted in an oversupply in the world market [Lower, 1984].

As TCC expanded, the partners’ geographic separation reinforced their differing business interests. In 1850, Dunn withdrew and Cook and Calvin divided their holdings. D. D. Calvin’s brotherinlaw, Ira A. Breck, purchased a 25 percent interest in the firm, and Calvin and Cook formally dissolved their partnership at the end of 1854. During the 1850s, TCC faced both good and bad years, as it dealt with the shortcomings of its market forecasts and local problems, such as the fear of cholera in 1854 which disrupted timber rafting. TCC’s reported profits also were reduced by its policy of taking major writedowns of assets versus a systematic method of depreciation. This contributed to the losses of 1858 and 1859.

Correspondence of the 1860s reads much like that of the 1850s. Concern about credit, the tendency to overproduce and the declining quality of the timber continued throughout the decade. The correspondence from 1867 easily could be mistaken for that of 1862 or 1864, were it not for the dates, with the same issues repeating themselves. In 1868, TCC began to make shipments directly to Great Britain, in sharp contrast to its initial policy of selling all its timber at Quebec. TCC had considered shipping “a last resort,” and only to be done “under extreme necessity.” By the end of 1869, the partners’ capital had grown to more than $360,000 from $160,000 in 1862 (approximately 12 percent per year).

TCC entered the 1870s as the industry leader in terms of oak timber (QUA, Box 117, Folder 1), reporting its largest profits in 1871 and 1873. The depressed world market reversed this positive picture and TCC’s reported return dropped by more than 85 percent in 1874, followed in 1875 by its first loss since 1859. TCC broke even in 1876, with additional losses in the last three years of the decade. TCC persisted in its timber operations, stockpiling considerable inventory. Activities increasingly were concentrated in the United States,2 but these operations did not prove profitable. TCC was left with the risk of real estate holdings in the United States, and the writeoff of considerable sums due to poor timber quality. In 1879, TCC reported its largest net loss at more than $91,000. At the beginning of 1880, partners’ capital was $316,133.82 compared to $389,479.23 in 1870. As indicated in Appendix 3, this was a drop of 18.83 percent, and a notable decrease from the years 1873 to 1876 in which their capital had been reported at over $500,000.

In 1880, Breck retired and TCC continued as Calvin & Son. In 1884, D. D. Calvin died, and the estate was divided among his heirs. TCC’s final years were encompassed in the end of the square timber trade more generally, as the industry was dominated increasingly by sawn lumber. Incorporated in 1886, TCC remained a family enterprise, a factor which appeared to constrain its flexibility. The loss of its labor force, transportation improvements, and a shorter timber season reinforced TCC’s declining profitability, as its facilities and ships were illsuited for alternate uses. Operations ceased at the outbreak of World War I.3

LITERATURE REVIEW

The accounting innovation and change literature has attempted to explain the adaptation of the accounting system to specific organizational circumstances. There is the frequent assumption that change is beneficial, resulting in a better fit between the organization and its environment. Much of this research has utilized a contingency framework, drawing upon organization theories of organizational structure and change.

Operations in the United States generally were conducted as joint ventures with individual company agents.

3It has been suggested that TCC ceased operations with the onset of World War 1 [Swainson, 1980], Examination of minutes of shareholders’ and directors’ meetings [QUA, Volume 80], and of company letters [MMA, Letterbook 23 g 24] imply that the decision was taken much earlier. This included the cancellation of fortnightly church services at the end of 1913, and the closing of the Garden Island school in July of 1914.

While structural contingency theories were popular in organization theory in the 1950s, 1960s and 1970s, this interest has diminished in recent years, especially with the emergence of other perspectives such as organizational ecology, institutional theory and organizational economics. However, contingency research remains popular in accounting, especially in the area of budgetary control [Merchant, 1984], budgetrelated behavior [Williams et al, 1990], accounting information system design [Kim, 1988] and strategy [Simons, 1987]. Early studies in both organization theory and accounting posited mere congruence theories and lacked a link between organizational fit and organizational effectiveness. The rudimentary notion was that structure was contingent upon contextual factors, thus variations in the two were related [Drazin and Van de Ven, 1985; Otley and Wilkinson, 1988].

In some ways, the ecological (natural selection) and institutional (managerial selection) perspectives justify congruence. The former views fit as an evolutionary process of adaptation wherein only the bestperforming organizations survive. It is also more pessimistic, as organizations are subject to structural inertia due to internal and external pressures for stability. The institutional view takes into account micro and macro levels of organizational design, but also constraints in terms of practices and prescriptions imposed by institutional forces [Drazin and Van de Ven, 1985, pp. 51617]. More complete formulations of contingency theory have emphasized the notion of fit between the organization and its environment [Drazin and Van de Ven, 1985; Gresov, 1989; Kim, 1988]. Pennings [1992] has described the latter as the equifinality view as opposed to the determinism inherent in the natural and managerial selection approaches.

Contextual variables have been classified broadly in terms of three categories: organizational size, technology, and environment. In turn, these factors are hypothesized to influence the organization and its accounting and information system.

Organizational size was utilized by Bruns and Waterhouse [1975] in their study of budgetary control. Increasing size was correlated to greater structure in activity and decentralization of control. Merchant [1981, 1984] also included the effect of size in the adoption of alternate control strategies. Increased size led to greater decentralization and reduced interaction amongst subordinates and superiors. Greater reliance upon procedures and paperwork also was noted, supporting earlier work by Gordon and Miller [1976]. There is some debate, however, whether size is a contingent variable, or whether it is within the organization’s control and relatively fixed in the short term.

Technology has been included within contingency research beginning with Woodward’s [1965] studies of workflow and structure. A number of studies have incorporated technological effects on accounting system design. A difficulty has been the varied concepts of technology utilized. For example, technology has been characterized alternatively in terms of production inputs, transformation and outputs.

Within accounting, technology has been theorized by Waterhouse and Tiessen [1978] in terms of technological routineness and environmental predictability. More recent empirical studies by Merchant [1984, 1985] define technology as the level of automation and predictability of the production process. Kim [1988] and Williams et al [1990] adopt Thompson’s concept of departmental interdependency. Given that technological change contributes to environmental uncertainty, Pennings [1992] has argued that the former should be subsumed within the broader category of environment.

Environmental uncertainty has been included in contingency studies beginning with the seminal work of Burns and Stalker [1961] and Lawrence and Lorsch [1967]. Gordon and Narayanan [1984] included perceived environmental uncertainty in terms of the impact upon organizational structure (organic/mechanistic) and the type of accounting information system utilized. Govindarajan [1984, p. 127] emphasized environmental uncertainty, defining the latter as “the unpredictability in the actions of the customers, suppliers, competitors and regulatory groups that comprise the external environment of the business unit.” Gordon and Miller [1976] subdivided environmental uncertainty in terms of environmental dynamism, heterogeneity and hostility, whereas Amigoni [1978] classified it with respect to turbulence and discontinuity. Khandwalla [1972] dealt specifically with the level of competition facing the individual firm. Again, these different ways to operationalize the construct have led to confused and often weak results from empirical studies.

An eventhistory analysis of the California wine industry by Delacroix and Swaminathan [1991] united a number of these related concepts together as environmental variation: the degree of environmental uncertainty, the amplitude of change in the environment and the frequency of this change. Although the authors adopted an ecological approach, the study examined the question of adaptive organizational change and the impact of the latter upon organizational survival. Moreover, survival was distinguished from performance. The former being a necessary precondition for organizational fitness and the latter denoting preparedness for future action.

Haveman [1992] studied organizational change in the savings and loan industry in the United States, under the assumption that environmental change occurs at the same rate for all organizations in the population. A motivation for the study was the paradox within ecological theory that change increases the risk of failure, but that organizational change is nonetheless abundant [Haveman, 1992, p .53]. Haveman focused on changes in the organizational domain; domain being defined as the clients served, goods and services provided, and technologies utilized. Two changes affecting the savings and loan industry have parallels to TCC: first, technological innovation, including the speed of information processing, which increased economies of scale and scope; second, macroeconomic change with respect to shifts in the money supply and the volatility of financial credit. The two are not disjoint. Technological change, coupled with deregulation, enhanced competition, reduced profit margins, and increased overall environmental uncertainty.

Organizational culture often has been overlooked in contingency studies, although its influence was included by Flamholtz [1983] in the framework of the overall organizational control system. The relationship between accounting and culture recently has received more interest, wherein organizational culture incorporates the shared values of the organization as embodied in the control system. Importantly, culture includes the selection and socialization process [Van Maanen & Schein, 1979] and power relations [Markus and Pfefffer, 1983]. Cultural factors have been recognized in studies of nineteenth century Canadian business [Bliss, 1987; McCalla, 1979, 1984]. Business relations and social ties frequently reinforced each other. Trust was the key factor in the granting of credit, for example, especially when market contractions occurred. McCalla [1984, p. 18] has described the nineteenth century business environment as “competitive yet mutually supporting.” This description is similar to Ouchi’s [1979, 1980] view that cultural or clan mechanisms reduce conflicts between individual and organizational goals, promoting a sense of community. Moreover, clan mechanisms are preferable in terms of lower transaction costs as opposed to market and bureaucratic control systems.

Many studies into organizational and accounting change have demonstrated weak results. This has been due, in part, to inadequate data and misspecification of the contextual variables. Dent [1990] suggests that the lack of compelling results also stems from the deterministic implications of these contingency theories. Likewise, Simons [1987, 1990] asserts the need for a more voluntaristic position, especially in relation to organizational strategy. Strategy previously has been included in studies by Khandwalla [1972] and Govindarajan and Gupta [1985]. This study does not incorporate strategy, but does examine the dynamic process through which innovation and change occurs. The longitudinal nature of the research mitigates a limitation of crosssectional studies by examining processes and accounting’s implication in the perception of organizational possibilities.

The foregoing review demonstrates that the current paper is grounded in an established literature, but also contributes to it by emphasizing longitudinal processes. Thus, the paper should be of interest to not only accounting historians, but also accounting and organizational researchers examining the issues of (accounting) innovation and change.

RESEARCH FRAMEWORK

TCC’s history has been divided into two periods. During the first phase (1839 to 1869), the company commenced operations, growing in both scale and scope, primarily within Canada. The second phase (1870 to 1915) incorporated TCC’s diversification efforts into the United States, the increasing importance of nontimber freighting, and the windup of its operations. The two periods have been determined ex post based upon the presence of management accounting information during TCC’s second phase.

Data Sources

The source materials utilized in this research can be grouped into three categories. Each of these categories are described in the following paragraphs.
The Calvin Company Records contained at the Queen’s University Archives, Kingston, Canada comprise the primary research data. These documents encompass records of the company’s timber, shipbuilding, salvage and towing operations; along with records pertaining to family and personal legal matters. The catalogue lists 256 bound volumes and 136 boxes, arranged according to the main group or category, as well as chronologically.

The Queen’s University collection is strengthened by its smaller counterpart, The Calvin Collection, archived at The Marine Museum of the Great Lakes, Kingston, Canada. The latter contains nine boxes of chronologicallyordered records of a persona] and business nature, as well as a large number of bound volumes of company and personal records. Since the Marine Museum primarily contains records of the Garden Island branch, it fills significant gaps within the Queen’s University collection.

Publications dealing with TCC’s history have served as a starting point to determine critical events in the company’s life. These sources have been used with caution, given that many have been written by family members. A wide spectrum of published materials in both accounting and Canadian economic history has been consulted to provide the necessary contextual background. A list of these sources is included in the References.

Data Analysis

The evolution of TCC underscores a variety of economic and social factors which affected and were affected by its operations. The crosstemporal comparison of the accounting system in TCC’s two phases seeks to uncover clues with respect to TCC’s evolution, and with respect to environmental changes which are linked to the former. Based upon the review of the existing literature and an evaluation of TCC’s own chronology, the following contextual variables potentially had an impact upon TCC’s activities, and upon its internal accounting system:
(1) Organizational size — the greater scope of the business, including the geographic dispersion of the partners, and of their agents.
(2) Technological innovation — advances in the timber industry which fed back into the company’s operations,and influenced its methods to account for them.
(3) Macroeconomic change — shifts in financial credit and the profit focus, especially due to the shortened operating cycle in the timber industry.

(4) Organizational culture — the importance of family connections to provide for stewardship and accountability, and to reduce problems of agency, thus making explicit contracts less important.

THE PROFIT CONCEPT IN FOCUS

The transformation from bookkeeping to accounting has been described by Littleton [1966, p. 165] as the shift from “a mere method of systematically recording exchanges into a means of giving business management an effective control over its affairs.” Included in this transformation has been a shift from a long to a shortrun profit concept. Initially, profit denoted the increase in net assets over time, but this view has been replaced by the focus upon the difference in net assets between two points in time. The change relates to two accounting developments at the end of the nineteenth century: the emergence of the entity, in contrast to the proprietary, view of accounting and the concept of the periodic income of a goingconcern. Both are related to the rise of the corporate form of business organization [Littleton, 1966, pp. 165221; MacNeal, 1970, pp. 292295].” This altered emphasis emerged in TCC, as it adapted to the business conditions of the late nineteenth century. One aspect of the latter was TCC’s adjustment to the corporate form of business organization.

TCC operated within an environment in which communications were slow, and often faulty. Decisions were taken with a longterm perspective, which influenced the nature of the business enterprise. The nineteenth century concepts of periodicity and profit cannot be equated with the timely reporting of yearly income. The determination of profit envisaged a longer time horizon with profit calculation made at the windup of individual ventures, or the liquidation of a business enterprise. The partners operated jointly to augment their personal wealth, the evaluation of their success to be made only at the dissolution of the partnership. Economic circumstances weighed heavily upon their ultimate success or failure, but little could be done to influence such events. Instead, TCC rode out the market fluctuations in a neverending quest for credit, and for new avenues of commercial endeavor. The formal partnerships were based upon a commercial system grounded in concepts of trust, stewardship, and the accountability of the firm’s individual members [Bliss, 1987; McCalla, 1979].

This longterm perspective was incorporated into both TCC’s Articles Of Agreement, and the operation of its accounting system. The former set out the copartnership terms, including the calculation of and the allocation of profit. The agreement provided the initial basis for partnership valuation, as well as the contractual basis for wealthsharing at final dissolution. It also ensured that the partners did not operate in conflict with, or in competition with, their mutual interests. The opening of branch offices and the geographic dispersion of the partners reinforced this need for accountability.

The Articles Of Agreement [MMA 980.150.82] between Calvin, Cook and Counter stated “that all gains, profits and increase arising from the said joint Trade and business shall from time to time during the term of Copartnership be equally and proportionally divided between the said Copartnership share and share alike and that also all such losses as shall appear in the said joint business …” Profit would be determined by the rendering of accounts by the copartners related to all “receipts and disbursements and all other things whatsoever done or suffered by them in the said joint business …” The document was not specific about either the timing of profit, other than “from time to time”, or, about the length of the partnership. These points were clarified in the next two agreements.

When C. E. Dunn entered at January 1844, the Articles Of Agreement [MMA 980.150.176] stipulated “that all gains, profits and increase arising from said Trade and business shall be divided at the expiration of the term as herein provided of said Copartnership, in proportion to their respective stock or share in said business or Trade. And that also all the loss or losses which may accrue or arise from said business . . . shall be borne, in proportion to their respective shares in said business, by the said parties.” The term of the partnership was set as five years from the date of the contract, unless otherwise dissolved as provided for in the agreement. Dunn entered the partnership with no capital contribution; a “freerider” in that he was to receive a proportionate share of partnership increases and decreases. Differences between the accounting records and the Statement Of Affairs (SOA) upon which the partnership valuation had been determined suggest that the accounting system could not be relied upon for wealth allocation, and that any Profit and Loss (P&L) balance would not be an accurate estimate of partnership wealth.

The third Articles of Agreement between D. D. Calvin, H. Cook and T. H. Dunn [MMA 980.150.221] had more stringent accountability provisions related to partnership shares and responsibilities. Greater emphasis upon the accounting system as an interim measure of both stewardship and accountability was observed. It also specified the term of the copartnership, at the end of which profits or losses would be divided according to the partners’ individual shares — fivetwelfths each for Calvin and Cook, and twotwelfths for Dunn. It limited withdrawals by individual partners to a monthly allowance, and eliminated their authority to extend credit. These enhancements to both the accounting system and the contractual agreement sought to maintain the accountability of the partners which had been the major feature of the 1839 agreement.

Given the partnership contract, there was no requirement to calculate profit or loss on a systematic (such as yearly) basis, since the final gain or loss would be declared upon dissolution of the joint business. The partners were required to present an annual report of the transactions undertaken related to the joint ventures, but this did not require that any interim profit or loss be divided amongst them. For example, at the end of the Calvin, Cook & Counter partnership (December 1843), the overall profit of the ventures, as stated in the second SOA was £12,223 ($48,892) [MMA 980.150.174]. Importantly, the 1843 valuation could not have been made from the accounting records alone, but necessitated the use of the SOA. The SOA valuation was a mixture of book records and current value estimates. The latter were provided by various businessmen called upon with respect to specific assets, such as schooners and real estate. Receivables were stated at their net realizable value, with deductions made for estimated losses. Shipments in transit, and inventory on hand, were recorded at net realizable value, with allowance for estimated expenses to be incurred. In short, these accounting estimates of current value were a surrogate for prices in presentday equity markets.

Including the sum attributed to goodwill, Counter’s onethird share (£5,000) was debited to the P&L account, while reducing his liability to the firm. As noted by Littleton [1966, p.
167], the calculation of profit as the net difference between assets and liabilities emphasized the nineteenth century view which equated profit with an increase in capital. Thus, the SOA determined the return of capital to the partners. Although it was used only infrequently during the period from 1839 to 1869 (rather than to determine the outcome of individual ventures), the SOA provided the overall valuation of the joint ventures comprising the partnership. During the second phase, the SOA calculated return on capital, and allocated owners’ equity between capital and profit. It was prepared yearly upon TCC’s incorporation in 1886. The SOA was the formal document with which to determine the respective shares of the individual partners, initially at dissolution, and yearly once the firm attained limitedliability status.

From 1839 to 1850, the accounting system did not record profit in each year. The P&L Account was balanced at the end of 1840, 1841 and 1842. These amounts were not transferred elsewhere in the accounts, and the P&L Account was set back to zero. When J. Counter withdrew, the P&L Account was not balanced at all. The £5,000 value placed on a onethird interest formed the valuation basis for contracting when a new partnership was established in January 1844. The subsequent partnership began with a capital stock of £15,000, and C. E. Dunn was expected to pay £2,500 for his onesixth share.

When the second copartnership began in 1844, and continuing with the third agreement from 1846 to 1849, the P&L balance was carried forward each year. Only at the end of 1849 was this amount transferred to the Stock Account. The dissolution of the partnership in June 1850, concurrent with D. D. Calvin’s and H. Cook’s agreement to divide their interest, eliminated the balance of the P&L Account.5 The shares of the individual partners were determined by the evaluation of their joint property. Calvin and Cook accepted responsibility for the assets and liabilities of their respective operations, along with the transfer by Calvin to Cook of the former’s share in certain assets.
5Calvin and Cook operated in outward form as a partnership, yet in substance were two separate businesses. This was formally recognized in 1854. The two partners did not wish to dissolve their arrangement formally in 1850, since the change at Quebec and additional changes at Hamilton and Garden Island might have been perceived as instability in their operations [QUA and MMA Calvin Company correspondence].

Thus, the longterm view of profit was reinforced by the partners’ own attitude and conduct, and also by the Articles of Agreement which established the means for profit calculation and allocation. Each copartnership terminated with the overall evaluation of assets and liabilities. Profit was declared as the increase in net assets over time.
When Ira A. Breck entered the business in 1851, the value of his share was determined to be £2,606.11.6 (adjusted to £3,549.12. 6 in March 1853 to correct earlier recording errors). This amount represented one quarter of D. D. Calvin’s equity, calculated as the difference between the assets and liabilities of Calvin Cook & Company at December 31, 1850. Despite the introduction of a yearly profit number at this time, the concept of profit was not altered significantly. The profit or loss was mingled with other amounts in the Stock Account, and essentially was absorbed into capital. The shortcomings of this procedure were beginning to emerge — without the timely allocation of profit, there existed no method for Breck to pay for his partnership share.

In February 1860, journal entries (totalling $43,182.72) recognized the division of the business at January 1851. Entries allocated on a 75/25 basis the balance in the Stock Account resulting from profits and losses since 1851, and adjusted for Breck’s salary during these years. The allocation of profit on a yearly basis according to the partners’ capital shares provided Breck with a capital source with which to reduce his outstanding liability. The change culminated in greater attention to the yearly profit figure. The value placed upon Breck’s share in 1851 was calculated from the value of the assets and liabilities, as recorded in the accounting records. This was a break from the earlier years when the latter were not relied upon for such valuations, thus creating the initial need for the SOA.

Beginning in 1860, the profit figure was both calculated and allocated at the yearend closing of the books. Nonetheless, the allocation did not imply that profit was considered to be shortterm in nature, i.e., similar to the nineteenth century concept of income calculated on a goingconcern basis. These changes also simplified the preparation of a balance sheet, yet there is no evidence that such a document was utilized. It probably was not necessary, since the two partners were in close contact with each other, and with business operations. The yearend closing procedures remained basically the same, although the system to allocate transactions became much more complex as TCC expanded. While each individual account still was treated as a separate fund, one such account would be allocated to several others before a final profit or loss was determined. This had the effect of decreasing the potential information content of the final profit or loss figure from an individual venture. The transfer of costs from one account to another could create a gain in one account at the expense of others, contingent upon the transfer price used. For example, the company store and bakehouse generally showed a profit each year, yet this gain resulted from sales primarily made to TCC’s operating departments. While the need for a balance sheet was not apparent during the first phase of TCC, this situation changed in the second phase, when the balance sheet assumed an important role within the reporting system.

TCC had to deal with changes in both its internal and external environment throughout the 1870s. In 1871, the entry of Calvin’s son, Hiram, meant that profit was to be divided amongst three individuals. Hiram assumed a 25 percent interest in 1873, which unfortunately for him corresponded with the downturn in the world timber market.

The preparation of a balance sheet was mentioned in a letter dated January 1872, written by Hiram to his father [MMA 980.150.280], and its preparation in 1870 can be inferred from other archival documents. The General Ledger indicates that the balancing of the P&L account was undertaken in two steps: an initial balancing determined the period’s profit or loss, prior to the drawing of partners’ salaries. The second step recorded the latter amount, such that the final profit, net of salaries, was revealed. Although this twostage balancing appears to have been dropped in subsequent years, its use in 1870 may be explained by the increase in the salaries of Calvin and Breck from $3,000 to $5,000 each per annum. The payment of a yearly salary, in lieu of interest on their respective capital shares, had been confirmed in an agreement dated December 25, 1871 [MMA 980.150.973]. Hiram Calvin’s interest in the 1871 profit probably was related to his entry into the business at this time. He was to receive 75 percent of the profit from the operation of the government tugline service.

This was especially unfortunate, since Hiram had agreed to finance his share with yearly payments with interest calculated at 6 percent.

The profit numbers, which had been rising during the 1860s and early 1870s, were transformed into heavy losses. Significantly, TCC retained its longterm perspective, essentially continuing to make timber, build ships, and to operate its other facilities in the belief that the tide eventually would turn. At the end of 1879, the firm’s stock of unsold oak lying in various Quebec coves amounted to 1,774,000 feet [Box 135, Folder 7, 187879]. With Hiram Calvin’s withdrawal from the partnership in 1877, it was possible for the two remaining partners to absorb the heavy losses.

While TCC attempted to cushion itself from sagging timber markets, and changing business conditions (such as increased competition in rafting, the shift from wood to coal fuel, and from ship to rail transport, the need to adapt became obvious in the 1880s. At Break’s withdrawal, the longterm view prevailed for the last time. The accounting for this change affirmed that the two partners were to arrive at a final calculation of their profits over the period from 1851 to 1880. The Articles Of Agreement [MMA 980.150.976] of April 1880, which established the terms of Breck’s retirement, provided for the transfer by Breck to Calvin of the former’s interests in the firm, except for specified assets. Breck also was to receive $12,500 with interest at six percent per annum on the unpaid balance. In total, Breck received assets valued at $33,000 compared to his initial capital interest of $14,199. The balance of $29,702 in Breck’s Capital Account was declared a profit, which suggests that his interest had been overstated. Despite the yearly division of profit from 1851 to 1879, the final determination of this gain was made only at partnership dissolution.

Hiram Calvin reentered the business upon Breck’s retirement. The Indenture [MMA 980.150.726] between Hiram and his father stated that the former would receive a six percent payment on his Capital Stock as at April 1880 ($22,055.04), plus a yearly salary of $2,500. All profits or losses would accrue to D. D. Calvin.

While this arrangement may have been sufficient while D. D. Calvin was alive and head of the business, it was not adequate once his death cast the future course of TCC into doubt. Equally, the profit concept proved inadequate once the corporate form of business was adopted in 1886. Littleton [1966, p. 217] has described this inadequacy as follows:
But for a going concern the final facts are not yet available; it does not suffice to consider values (assets and liabilities) as if in liquidation, nor to use current values, for in both cases there is a lack of reality in the resulting calculation of profit because of the lack of actuality of the values used. The modern problem has come to be viewed as the problem of ascertaining income rather than profit; that is to say, the need at present is to distinguish between operating income and capital increments.

The yearend procedure whereby profit was transferred to the partners’ capital accounts did not suffice once TCC was organized as a corporation, with contributed capital and the potential for both dividends and surplus. The situation also underscored TCC’s need to move from a family business to the consideration of the family and the business as two separate entities.

At this juncture, the SOA reappeared in a much different format. The SOA next was used in 1884 in connection with the settlement of D. D. Calvin’s estate.7 Upon incorporation in 1886, D. D. Calvin’s heirs transferred to TCC their interest in the business assets in return for a cash settlement or shares of the new enterprise. Initially, TCC had to finance the share purchase, as their only collateral was their interest in the very assets now transferred to the firm. The new corporation issued capital shares in the amount of $157,500 (1,575 shares with a parvalue of $100 each). TCC was required to distinguish clearly capital and profit, as capital had to be maintained, i.e., no dividends could be paid from issued capital. Corporate status legally required the presentation of an annual report to shareholders, thus the SOA was prepared yearly in a more detailed and formal manner. Of particular note was the linkage of the amounts recorded in the SOA with those recorded in the General Ledger. The SOA summarized the ledger entries for each account such that all gains and losses could be traced to their original source. The SOA also reinforced the duality of the accounting system, since it arrived at a profit number by the examination of individual accounts while the P&L Account yielded this same figure by an alternate route. The SOA clarified when such gains were from capital or operations, which the P&L Account did not differentiate. Since issued capital stock was constant at $157,500, the SOA provided a means to divide owners’ equity between profit made in the course of business operations versus increases in capital. Yet TCC’s continued use of a fund system for its longlived assets potentially could have obscured the difference between profits (or losses) arising from operations rather than from the valuation or liquidation of assets.

Additionally, the SOA indicated whether any profit led to a dividend payment or a contribution to a capital surplus. Two features of TCC’s dividend policy are noteworthy. First, except for the year 1891, TCC declared a yearly dividend from 1888 to 1907. However, five of the nineteen payments were made, in whole or in part, by drawing down the Surplus Account. Second, the payment of a cash dividend implied the need for increased credit or for the liquidation of an asset. Only in 1894 did TCC possess adequate cash resources to cover the dividend payment. A comparison of TCC’s dividend payments to the current (and most liquid) assets of cash and bills receivable indicates that the dividend exceeded these liquid assets from 15.10 to 858.66 percent.

TCC’s dividend policy also contributed to the erosion of its capital base. During the period from 1887 to 1915, TCC had total gains of $172,827 of which it paid out 76.59 percent in dividends9. This left the firm without adequate funds to invest in new technology, let alone to finance ongoing operations. The balance sheets from 1887 to 1915 trace TCC’s decline during this period. The company moved from a surplus to a deficit situation in 1911. From 1887 to 1915, TCC showed a profit in 22 of 29 years. However, this profit as a percentage of issued capital ranged from a low of 0.20 percent in 1887 to a high in 1890 of 21.22 percent. Losses were much higher in percentage terms, ranging from 6.47 percent in 1908 to 50.21 percent in 1914. The balance sheets also indicate the decrease in net assets from $157,812,42 in 1887 to $11,966.16 in 1915. At the end of 1915, the deficit account equalled 92.02 percent of paid up capital.

8The average of the excess in these years was 169.93 percent (standard deviation o = 222.09, n = 19).
9TCC’s dividend policy and its financial impact are summarized in Appendices 4 and 5.
“This percentage was 96.56% in 1919, the last year for which financial statements have been located in the archival records.

This dividend policy could be considered a good strategy from the viewpoint of the firm and the entrepreneur jointly. TCC possibly was liquidated gradually for reinvestment or consumption \>y the owners.

As stated earlier, the concept of profit evolved during the company’s life from the calculation of return of capital to the determination of return on capital — a stock versus a flow concept. Before incorporation, the balance sheet calculated profit as the net value of assets. It reinforced the nineteenth century view of profit as an increase in capital, as the yearly gain or loss was absorbed into the partners’ capital accounts. This reflected TCC’s longrun focus and the proprietary view of accounting. The accounting equation was Assets = Liabilities + Owners’ Equity. This view was evident at Breck’s retirement in 1880 at which point the partnership’s profit (return of capital) could be determined.
Moreover, when the SO A was employed in 1842 and 1843 (and possibly 1850), its primary objective was the calculation of the return of partners’ capital. It established the change in wealth over time — the return of capital. The latter was a stock concept, as it assessed the increase in net assets over time. Since the partnership agreements called for the division of profit at the end of the various joint ventures, it was simply a matter of calculating the difference in net assets (assets less liabilities) over time. This difference was owners’ capital. A profit was declared if this amount exceeded the original contribution made by the partners. For example, at the end of 1843, a profit was considered to have been made11, but no estimation of the rate of profit or of the rate of return on capital was made. Further, there was no assessment of the decrease in this return during the period from 1842 to 1843. Profit was a longterm concept, and only deemed to have been realized upon termination of the partnership.

Subsequent to incorporation in 1886, the SOA returned in an altered format to calculate the return on capital — a flow concept. It focused on the short run, and the profit made in a single year, which permitted the profit of a single period to be related and compared to that of other periods. The SOA indicated the allocation of profit between surplus and dividends, or the payment of dividends via a reduction in the surplus account.

“Counter’s award of £5,000 exceeded his initial contribution of £3,000.

Additionally, the SOA provided the returnoncapital figure, since the issued capital was constant at $157,500. TCC’s management did evaluate the return on capital (ROC) for the period from 1888 to 1913 [MMA, Letterbook 23, pp. 728729]. Over this 26 year period, TCC paid an average dividend of $5,088.45 per year. This represented a ROC of 3.23 percent per year. The report further indicated the total gains and losses were $179,183.91, an average gain of $3,041.69 per year. The evaluation of the total profit over a 26 year period suggests that TCC had not shifted completely from a longrun profit to a yearly income figure. Moreover, the indicated average gain represented a ROC of only 1.93 percent. In contrast, the dividend payment was greater, ranging from two to six percent of issued capital. However, TCC’s actual rate of return was more variable, ranging from a loss of 29.24 percent to a gain of 21.22 percent.12 It is not unlikely that this evaluation, along with a further loss in 1913, motivated the decision to windup operations in March 1914. Interestingly, it was also in 1914 that TCC replaced the SOA with a Profit & Loss Statement.

The shift to a limitedliability company did not enhance TCC’s viability, as family members did not distinguish TCC from the estate of D. D. Calvin. The payment of dividends over the period from 1888 to 1907, instead of the reinvestment of funds, led to the erosion of the firm’s capital base. The shortrun fixation made it more difficult for TCC to invest the capital required to position itself as a forwarder in markets other than square timber. As noted by H. Calvin in a letter to his brotherinlaw dated September 1886 [QUA, Volume 26, Folio 67], it might have been preferable for Hiram to have purchased the assets of the business, rather than to deal with the varied interests of family members and other shareholders. In time, Calvin became the majority shareholder, but this alone did not reverse the firm’s fortunes.

CONCLUSIONS AND INTERPRETATION

Studies of organizational and accounting change have examined the impact of various contextual variables upon the organization and its accounting system. Parallels can be drawn with TCC’s own experience. In broad terms, TCC’s accounting system moved from a recorder of events to a system which would provide the means to control its operations.

It has been hypothesized [Bruns and Waterhouse, 1975; Merchant, 1981, 1984] the organizational size influences the accounting system, especially in terms of standardization and complexity. TCC’s case reinforces this argument. During TCC’s early years, accounts were not kept in a timely manner and were closed variously, depending upon the circumstances of the individual venture. The accounting records were not relied upon for partnership valuation, as the former were incomplete. The dissolution of the first partnership in 1843 was based upon the SOA prepared by an arbitrator. Similarly, the partners’ respective shares at the dissolution in June 1850 resulted from a negotiated settlement, as was the division of assets between Calvin and Cook.

Over time, reliance upon the accounting records increased, as they became more systematic. The accounting system’s role was enhanced by the growing concern for partners’ accountability, and by their geographic dispersion. Moreover, various contracts for partnerships, and joint operations were tied to the accounting records for profit determination. For example, the value of Breck’s share at 1851 was derived from the recorded values in the accounting records, whereas previous partnerships had used currentvalue estimates made by partners and outside arbitrators. In the initial years, agency concerns appeared to outweigh those pertaining to the relevance of these estimates. This interpretation lends support to the findings of Gordon and Miller [1976] and Merchant [1981, 1984] that increased organizational size leads to greater reliance upon an administrative control strategy and more formal patterns of communication.

The accounting system also was affected by internal changes. In December of 1846, the reorganization of the partnership brought a concurrent reorganization of the accounting records to include the valuation of its net assets, and the recording of the partners’ respective shares. In 1860, the calculation of the partners’ capital accounts changed, including the yearly allocation of profit.

As TCC entered its second phase, emphasis upon the accounting system increased, as the yearly profit calculation was granted greater significance. This situation parallelled changes in the internal organization, especially the entry into the firm of H.A. Calvin in the early 1870s. The accounting system expanded to provide better control of TCC’s operations, as they grew in scale and scope. As noted, the growth of the firm also led to improved methods to account for the partners’ capital interest. Again, this effect of size is consistent with earlier findings of Bruns and Walerhouse [1975] and Merchant [1981, 1984].

Interestingly, TCC also provides a counterexample in terms of decreased reliance on the accounting system as the organization contracted. The later years saw the streamlining of the accounting system in tandem with that of TCC’s operations. Summary accounts were employed, along with the less frequent recording of events. This tendency to infrequent reporting prevailed during the economic downturn of the 1870, as well as when operations declined in the twentieth century. Thus it may be beneficial to explore further the role of the accounting system in organizational decline, in terms of the information which the system generates and how this information is utilized.

Haveman [1992] has examined whether macroeconomic change, which leads to organizational change, proves beneficial in terms of the organization’s subsequent performance and changes for survival. The results of the study provide some support for the proposition that “diversification is beneficial if it builds on competences developed by operating in the organizational domain and hazardous if it is not related to those competences [p. 71].” TCC also confronted macroeconomic change in terms of a shortened operating and financial cycle, and an increased reliance on external financing.

For example, to reduce the need for shortterm financing, TCC moved from a partnership to a corporation. Incorporation resulted in a legal requirement to provide a balance sheet, along with changes in the latter’s composition to account for issued capital and surplus. Profit no longer could be absorbed into capital at year end, but the separation of the two was required. The yearly preparation of this information potentially contributed to the shortrun focus, as revealed by TCC’s decisions to emphasize the results of the current year, in contrast to its longterm viability.

These alterations also were necessary theoretically to deal with the altered meaning of the profit concept. The emergent concept was linked more closely to the present concept of income — the periodic profit of a goingconcern [Littleton, 1966].

While the calculation of profit brought together the related concepts of efficiency and effectiveness, it increasingly shifted TCC’s attention to the shortterm profit number. This view was reinforced by the existence of shareholders who were not actively involved in the business. The former were concerned with the potential for and the payment of their annual dividend. This concern may have differed from that of others, such as H. Calvin, who had been active in the firm, and continued to manage it. The heterogeneity of interests reduced TCC’s ability to pursue opportunities, and to implement plans to ensure the continued success of the business.

During TCC’s later years, the balance sheet also tracked the firm’s decline. While its yearly preparation indicated the impact of the past year’s results and provided a starting point to plan future operations, TCC’s management did not seem to be sensitive to the information in its accounting reports, including the obvious need to reverse the erosion of its capital base. This insensitivity was reinforced by the format adopted in the accounts, which reported the growing deficit as a debit item, rather than as a reduction in capital.
Upon incorporation, the SOA (like the balance sheet) was legally required under the terms of TCC’s bylaws. Initially, the information had been prepared to meet these reporting requirements. Yet, with the use of the SOA, the importance of timing and of periodicity began to emerge. The SOA did not merely record the company’s financial situation, it also permitted management to ascertain where gains and losses were being made. However, TCC did not succeed in the shift from a family business to a business enterprise, i.e., a shift from the proprietary to the entity view of the business and of the accounting for it, such that the information was not utilized to its potential. Instead, the payment of dividends appeared to be of more concern, rather than the impact of these payments upon TCC’s capital base.

Product markets were in transition and did not build upon TCC’s existing strengths in the square timber industry. Technological innovation affected TCC and its efforts to expand into new products and maintain its competitive position. Thus, TCC was facing changes in its organizational domain which increased uncertainty and required adaptation to new ways of doing business. Endeavors into new technologies and markets did not prove viable, supporting Haveman’s [1992] proposition that such efforts are less likely to succeed if they are not grounded in existing organizational strengths. TCC initially began operations when the market and its related institutional framework were more amenable to the entrepreneurial firm, as exemplified by the many early entrants into the timber industry. The death of D. D. Calvin left the term at a crossroads. Faced with increased competition, and without adequate human resources, TCC was not positioned to confront the new challenges posed by the changes in the timber trade and by the technological advances of the latenineteenth century. For example, TCC’s management had sought to change course via greater investment in more efficient equipment. This option was delayed, and later poorly implemented, due to the concurrent policy of paying out the major share of earnings as dividends. The increasing scale and scope of business implied concomitant adaptations in the administration and control of business organizations. The shift from a partnership to a corporation brought with it the privilege of limited liability, but also certain duties towards its shareholders. Incorporation also meant new requirements in terms of accounting which could not be met by the accounting methods of the partnership.

Organizational culture, specifically the family style of business, was an important factor in TCC’s evolution. TCC’s situation reinforces McCalla’s [1979, 1984] findings concerning the reliance on family ties and close business associates; personal trust being the basis for many business transactions. It also supports the work of Flamholtz [1983] and Ouchi [1979, 1980] with respect to the role of socialization and clan mechanisms as part of the management control system. The family style of business was reflected in TCC’s operations and in its accounting for them. The close involvement of partners reduced the need for the calculation of the firm’s net worth and profitability. Periodic assessment by the partners was possible through direct examination of the actual accounting records. No dissolution took place from 1854 to 1880, eliminating the need to determine partners’ wealth as at dissolution or the commencement of a new partnership. It also permitted TCC to retain its longrun concept of profit. However, the latter changed significantly in the later stages of the company.
During TCC’s first phase, the longterm view of profit was maintained, but the weaknesses of this perspective were becoming evident. The limitations possibly were related to the length
of the partnership. Calvin and Breck remained partners for approximately thirty years, such that TCC would have been described more aptly as an ongoing business, rather than as a series of joint ventures. These limitations became more obvious during the second period of TCC, especially with the adoption of corporate status. The emergence of a shortrun focus also was revealed by increased attention to the balance sheet. The latter was not independent of the role of family members in the firm, and their remuneration. For example, with the entry of Hiram Calvin in the 1870s, the profit figure had to be allocated among three individuals; yet their financial position and interests conflicted.

The reliance on homogeneous beliefs and family ties was threatened upon incorporation and contributed to TCC’s decline. While operating in outward form as a limited company, in substance, TCC remained a family business. TCC’s waning years were ones of missed opportunities. TCC’s dividend policy, which led to the erosion of its capital base, contributed to the latter. The payment of dividends (which were roughly double the return generated in the firm) lends support to the argument that TCC’s decline was due, in part, to its unsuccessful shift from a family business to a business enterprise. The firm was utilized as a means to provide for family members who received dividends (and in some cases salaries) from the firm, TCC was left without the capital required to sustain its place in the market. TCC’s experience reinforces the argument of Bliss [1987] that family firms often failed to develop managerial expertise, instead relying upon family ties and tradition. Indeed, the comments of Bliss [1987, pp. 352353] are appropriate here:

The secret of making the transition from builderpromoterentrepreneur was to find ways of bringing the business under accounting control, if only by hiring people who could, . . . not just to produce a clear sense of where each department was going, but to use the accounts to unleash the energies of managers and employees whose responsibility for their performance could be clearly traced and measured, no matter how big the organization.

The competitive environment of the twentieth century required the ability to control its ventures, but, significantly, also the ability to control those responsible for them.
The research results affirm the need to consider accounting within its environmental context. While the study is limited to one firm, the effect of rapid technological change, competitive pressures and new financial and organizational arrangements have parallels with presentday organizational experience. TCC’s case provides insights to assess the potential outcome of attempts to deal with current challenges. As noted by Previts et al [1990, p. 7], historical studies “specify social and economic conditions that influence existing and proposed practice techniques, enhancing our ability to evaluate competing techniques as suitable for the current environment and circumstances.” Moreover, current research into management control perhaps needs to incorporate a longer time frame in order to understand the role of the accounting system, and to assess the influence of social, economic, and institutional forces.

Accounting’s implication in the assessment of perceived organizational possibilities cannot be disregarded in the formulation of theoretical prescriptions for accounting practice. TCC’s example demonstrates the unintended consequences of innovations and of the accounting’s systems efforts to account for them. Thus accounting researchers may achieve greater success with and acceptance of their theories by providing conditional prescriptions in terms of the particular organizational context. For example, organizational size and culture differ across firms, yet their effect may be circumscribed by other overriding environmental forces.

Future research is necessary to determine to what extent TCC’s experience was similar to that of other firms of the period. This would improve our understanding of organizational and accounting change and provide additional insights for developing more broadlybased theory. Finally, the differences between the proprietary and entity view of accounting, as demonstrated within TCC, merit further attention. In TCC’s later years, the accounting equation had been changed theoretically from Assets = Liabilities + Owners’ Equity to Assets Equities, highlighting the separation of the owner from the entity or organization. The increasing importance of the corporate form and the role of the shareholder versus proprietor/partner contributed to this shift in perspective. Profit was no longer a longrun change in wealth, but net income, i.e., revenues less expenses. It may be fruitful to reexamine these differences in terms of recent research into foundational issues.

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APPENDIX 1 The Calvin Company Copartnerships

1839 Calvin Cook & Counter organized December 1839.
1843 Departure of Counter at close of year.
1844 C. E. Dunn enters partnership with l/6th share. Business known as Calvin Cook & Co. at Garden Island, and Dunn Calvin & Co. at Quebec.
Opening of Hamilton branch, Hiram Cook & Co.
1846 C. E. Dunn leaves partnership at end of year.
1847 T. H. Dunn replaces his brother effective January 1st.
1850 T. H. Dunn leaves partnership at June 1850. Calvin and Cook divide their interests. Quebec branch becomes D. D. Calvin & Co., other names unchanged.
1851 I. A. Breck assumes a 25% interest in Calvin’s business in January.
1854 Calvin and Cook formally dissolve partnership.
1855 Calvin and Breck formally recognize 1851 agreement. New partnership known as Calvin & Breck at Garden Island, Quebec branch name unchanged.
1873 H. A. Calvin purchases a 25% interest from his father.
1877 H. A. Calvin transfers his share back to his father.
1880 Breck retires. H. A. Calvin reenters firm, but with payment of salary in
lieu of share in profits. Firm renamed Calvin & Son. 1884 D. D. Calvin dies, and his estate divided amongst heirs. 1886 The firm reorganized as a limitedliability company in June 1886. The new company called The Calvin Company Limited.

APPENDIX 2
The Calvin Company Opeirations
DEMAND SUPPLY
Quebec
1 Island << Western Operations Lake Freighting River Rafting Sell At Quebec Ship On Own Account 1 i Great Britain Raft Construction Shipbuilding Sail Loft Merchandise A/C (Co. Store) Bakehouse Boarding House Tug Line Service Timber Sources Make Or Buy Joint Accounts Shanty Operations Fall/Winter The Timber Operating Cycle Winter ? Spring — ? Late Spring/ Summer Decision to buy/maker timber Contracts for sale of upcoming season's output. Settlement of prior season's accounts. Timber Shanty Operations Account Settlementcontinues. Timber brought to shipping points. Lake Freighting begins. Rafting from Garden Island starts. Summer/Fall Sales at Quebec on bills of exchange, or commission APPENDIX 3 The Calvin Company Return On Capital — 1862 to 1886 * Year Y/E Capital (1) Profit (2) ROC = 2/(12) 1862 $160,724.53 $33,348.08 26.18 1863 216,413.58 43,608.87 25.24 1864 232,795.79 33,677.69 16.90 1865 250,020.57 18,445.92 7.97 1866 268,376.62 20,731.96 8.37 1867 305,336.21 37,243.57 13.89 1868 317,790.60 23,783.18 8.09 1869 362,618.76 47,975.93 15.25 1870 389,479.23 40,268.30 11.53 1871 356,137.46 54,389.22 18.02 1872 483,095.21 45,875.98 10.49 1873 534,161.11 56,492.14 11.83 1874 527,946.29 8,240.24 1.59 1875 522,828.79 (11,355.18) (2.13) 1876 527,456.44 2,649.13 0.50 1877 493,557.54 (8,515.79) (1.70) 1878 405,474.30 (79,849.59) (16.45) 1879 316,133.82 (91,503.63) (22.45) 1880 305,613.56 37,186.67 13.85 1881 316,337.55 15,503.98 5.15 1882 526,091.00 27,689.08 5.56 1883 507,963.99 16,912.06 3.44 1884 509,655.24 (12,438.50) (2.38) 1885 495,660.46 40,943.13 9.00 1886 508,368.83 11,279.07 2.27 Source: The Calvin Collection, The Marine Museum of the Great Lakes. APPENDIX 4 Dividend Policy — The Calvin Company 1887 to 1915 TOTAL PROFIT DECLARED TOTAL LOSSES DECLARED BALANCE OF LOSSES OVER PROFIT $ 172,827.00 186,060.84 $ (13,233.84) TOTAL PROFIT DECLARED LESS DIVIDENDS $ 172,827.00 132300.00 BALANCE OF PROFIT OVER DIVIDENDS TOTAL LOSSES DECLARED $ 40,527.00 186,060.84 DEFICIT ACCOUNT AT DECEMBER 1915 $(145,533.84) DIVIDENDS AS A % OF PROFIT DECLARED: TOTAL LOSSES TO TOTAL PROFIT: APPENDIX 5 Dividend Payment versus Liquid Assets* Year Dividend Payment (1) Liquid Assets (2) before dividend Excess of 1 as % of 2** 1888 $6,300.00 2,625.58 139.95 1889 9,450.00 5,054.67 86.96 1890 9,450.00 2,288.44 312.95 1891 — 5,976.46 — 1892 7,875.00 4,015.18 96.13 1893 6,300.00 6,362.08 (0.99) 1894 3,937.50 6,560.45 (39.98) 1895 6,300.00 1,101.46 471.97 1896 7,087.50 2,685.76 163.89 1897 9,450.00 6,458.26 46.32 1898 9,450.00 7,749.10 21.95 1899 6,300.00 4,846.41 29.99 1900 9,450.00 5,462.89 72.99 1901 7,875.00 2,880.50 173.39 1902 5,512.50 3,747.47 47.10 1903 6,300.00 3,100.75 103.18 1904 5,512.50 3,117.75 76.81 1905 6,300.00 657.17 858.66 1906 6,300.00 965.81 552.30 1907 3,150.00 2,736.80 15.10 * Liquid Assets = (Cash + Bills Receivable) ** Average = 169.93% (a = 222.09, n=19) Source: The Calvin Collection, The Marine Museum of the Great Lakes. APPENDIX 6 Profit Analysis — 1887 to 1915 Year End Return on Capital Net Assets Surplus (Deficit) 1887 0.20 $157,810.42 — 1888 4.36 158,063.39 563.39 1889 6.03 157,554.24 54.24 1890 21.22 181,476.05 23,976.05 1891 (8.69) 167,793.77 10,293.77 1892 5.00 167,803.06 10,303.06 1893 3.34 166,846.77 9,346.77 1894 0.65 163,936.96 6,436.96 1895 4.06 164,025.11 6,525.11 1896 5.72 165,939.95 8,439.95 1897 10.33 172,764.74 15,264.74 1898 7.58 175,249.33 17,749.33 1899 5.06 176,911.18 19,411.18 1900 7.32 178,995.58 21,495.58 1901 10.02 186,911.16 29,411.16 1902 1.27 183,397.36 25,897.36 1903 4.39 184,017.27 26,517.27 1904 1.14 180,304.29 22,804.29 1905 4.05 180,389.62 22,889.62 1906 0.38 174,682.31 17,182.31 1907 2.27 180,089.29 22,589.29 1908 (6.47) 169,891.33 12,391.33 1909 (6.32) 159,931.09 2,431.09 1910 1.13 161,707.54 4,207.54 1911 (29.24) 115,649.74 (41,850.26) 1912 1.57 118,128.72 (39,371.28) 1913 (8.73) 104,383.91 (53,116.09) 1914 (50.21) 25,304.47 (132,195.53) 1915 (8.47) 11,916.16 (145,533.84) Source: The Calvin Collection, The Marine Museum of the Great Lakes.