Sec, 14] CAPITAL ACCOUNTS 87 
§ 14 
The bankruptcy of one firm often causes the bank- 
ruptey of another. The interdependence between firms 
may be clearly seen in the following table, where the liabil- 
ity of one person is represented by the asset of another, 
thus: — 
  
  
  
  
  
  
Person A 
Assets Laabilities 
Miscellaneous . . . $100,000 NotetoB . . . . $50,000 
Capital © . v5 Us 50,000 
$100,000 $100,000 
Person B 
Assets Liabilities 
Alsnote . . . . . $50,000 NotetoCetal. . . . $40,000 
Miscellaneous ., . . . 20000 Capital. . . . . . 30,000 
70,000 $70,000 
Person C 
Assets Liabilities 
Note of B « . . '. + $20,000  BillstoD etal. . .:.:$10,000 
Miscellaneous. . . . 20,000: Capital. . . . . = 30000 
$40,000 $40,000 
Person D 
Assets Liabilities 
Due from C. . . . . $5000 Miscellaneous . . . - $9000 
Miscellaneous . . . . 4000 
$9000 $9000 
Now suppose, A fails, for the reason that his assets un- 
expectedly shrink to $10,000, that is, become $90,000 less 
than they were before. Then the value of the liabilities 
shrinks $90,000. This wipes out all of A’s capital of $50,000, 
and takes $40,000 from the value of the rest of his liability, 
which was a note to B. B gets, therefore, only $10,000 
out of a claim of $50,000 or only 20 cents on the dollar. 
In B’s account this note of $50,000 must now be scaled