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Ex -Offic io m em b e rs W. P. 6. HARDING. GOVERNOR PAUL M. WARBURG. VICE GOVERNOR FREDERIC A. DELANO ADOLPH C. MILLER CHARLES S. HAMLIN WILLIAM 6. McADOO SECRETARY OF THE TREASURY CHAIRMAN JOHN SKELTON WILLIAMS FEDERAL RESERVE B O A R D COMPTROLLER OF THE CURRENCY H. PARKER WILLIS. SECRETARY SHERMAN P. ALLEN. ASST. SECRETARY and W A S H IN G T O N V Fis c a l A g en t £ £ Q q^ p l y t o a d m FEDERAL. RESERVE BOARD July 7, 1915. SIR: For the purpose of establishing a uniform method of carrying investments in municipal warrants upon the books of Federal reserve banks, the following suggestions are made : 1. All warrants purchased should be charged to the investment account at the amount which will be received for each investment at maturity. At the present time certain warrants call for pay ment of face amount at maturity; others call for face amount plus interest. This necessitates carrying the two classes of investments in a different manner. 2. The difference between the cost and the amount which will be received for the investment at maturity should be credited to the account of " Unearned interest on invest ments'/' ( code word "BOBI" on Form 34 ),,on the liability side.. Transfers from that account should be made to "Interest on investments " ( earned ) account, ( item "BODE" on Form 34, in a manner similar to that employed with re spect to unearned discount. The adoption of this suggestion will enable the banks to carry rediscounts, acceptances and warrants on a like' basis and will greatly simplify the accounting system. -2- 'jr:L 4 No entries would have to be made against item "Accrued Interest” ( except United States Bonds )* 3« In computing daily earnings on municipal warrants, the pro ratu method has been found to work very satisfactorily. The amount which is credited to ” unearned interest on in vestments” should be divided by the number of days to matur ity in order to determine the amount to be apportioned for each day* For purposes of illustration the following hypo thetical cases involving the investment of $10,000--of 4fo Mu nicipal warrants are taken and their suggested treatment on Form 34 is shown * I* Warrants due without interest (a) or with interest at 4fo (b) six months from date of issue and from date of purchase by the Federal reserve bank. RESOURCES. LIABILITIES. (a) Cost............ ...... -BOBI-Unearned interest on Investments (BAXE)..... 10,000 investments........$200.00 (b) dost........ •-....... 10,SCO -BODE-Interest on investments Investments (BAXE)..... 10,200 1" day*.*.**....... 1.31 thereafter.......... 1.11 II. Warrants due without interest (a) or with interest at 4fc (b) aix months from date of issue and 3 months from date of purchase by the Federal reserve bank. RESOURCES . LIABILITIES. (a) Cost................. . .$ 9 ,900-BOBI-Unearned interest on (BAXE) Investments..•..... 10,000investments ....... $100.00 (b) Cost............ ...... 10,jfGQ-BODE-Interest on investments (BAXE) Investments....... 10,200 1" day...... . , daily thereafter... i.2i 3 III, Warrants due without interest (a) or with interest at 4fo (b) six months from date of issue and date of purchase by the Federal reserve bank, bought on a 3f0 basis : RESOURCES. LIABILITIES. (a) Cost..... .$9,850-B0BI-Unearned Interest on investments............$150,00 (BAXE)Investments ........ 10,000(b) Cost,............ ..-10,050-BODE-Interest on investments (BAXE)Investments ... .... 10,200 1" day.............. . daily thereafter...... > In the three cases involving the purchase of warrants, calling merely for payment at maturity of face amounts, item"BAXE" should be charged with $10,000; in the three cases call ing for payment at maturity of face amount plus interest, item "BAXE" should be charged with $10,200* Respectfully, > Secretary. Mr. Chairman, Board of Directors, Federal Reserve Bank of v 1.43 .83
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