years. One of the poorest of the forty-three kinds, a second-mort-
gage 6% bond on an auxiliary road, was exchanged for $300 in new
mortgage 4's and $960 in income 5's. The $300 at 4% would yield
$12, and $960 at 5% would yield $48, a total of $60. Here, one
fourth was in practically certain mortgage bonds and the remaining
three fourths was in the very doubtful income bonds, which might
yield nothing for years. Yet even in this case the probability of
income was practically as good under the reorganization as under
the former plan.

Thus the risks were apportioned among the forty-three classes
so as to give each a fair exchange for its estimated value and se-
curity; and the new bonds were of a sort to simplify very much the
administration of the finances of the company. In 1892 the income
bonds were converted into second-mortgage bonds, and additional
second-mortgage bonds were issued for cash to enable the road to
make extensive improvements. As we have seen in our study of the
history from 1891 to 1893, however, the interest on these could not
be met, and in 1893 even the mortgage 4's became doubtful, so that
the other reorganization of 1895 was necessary to cut down once
more the fixed interest charges to $4,500,000.

These two cases of reorganization suggest, of course, but a few
of the many devices; but they indicate the general principles and
show sufficiently how accounts are called into use and how they
are affected by changes of this sort. Unless based on adequate
knowledge of actual and probable income, reorganization schemes
are doomed to failure. The Atchison reorganization of 1889 was
based on an estimate of income that was never realized; and within
four years a new plan became imperative.

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