Accounting  problems. — ^With  respect  to  the  financial  results  of  the
farm-implement  companies  the  Commission  encountered  many  diffi-
culties in  obtaining  correct  and  comparable  figures.  The  accounting
problems  naturally  fell  into  two  groups,  those  affecting  the  invest-
ment and  those  affecting  the  profits.  The  chief  problems  encountered
in  the  ascertainment  of  the  investment  of  the  individual  companies
were  those  pertaining  to  the  treatment  of  good  will,  interest  bearing
indebtedness,  bad  debts,  and  resierves  for  depreciation  and  for  other
purposes.  The  accounting  problems  arising  in  connection  with  the
profits  pertain  to  the  incorrect  classification  of  accounts,  the  treat-
ment of  special  items  of  expense  and  the  treatment  of  inventory
values.  These  problems  will  be  more  fully  discussed  later  in  this
chapter  when  dealing  with  the  combined  companies'  profits  and  in-
vestment.
In  addition  to  the  ascertainment  of  investment  and  profits,  the
costs  of  certain  specified  implements  were  secured  and  Chapter  IV
of  this  report  deals  with  the  results  of  that  phase  of  the  inquiry.
Section  2. — Operating  income,  net  income,  investment,  and  rate  of  return
on  investment.
Definitions. — In  order  more  readily  to  understand  and  interpret
the  figures  appearing  in  the  succeeding  tables  of  this  Sectioi),  it  is
desirable  briefly  to  define  the  meaning  of  the  terms  mentioned  in  the
section  heading  as  used  herein.
Operating  income. — This  represents  the  income  derived  from  the
manufacture  and  sale  of  farm  implements  and  accessories,  whether
produced  by  the  principal  company  or  its  subsidiary  companies,  be-
fore making  any  deduction  or  addition,  imless  otherwise  stated,  for
interest  paid  or  received,  cash  discount  allowed  or  received,  and  be-
fore adding  or  deducting  the  income  and  expense  derived  or  in-
curred from  purely  financial  transactions,  or  from  transactions  not
connected  with  the  actual  operations  of  the  business.
