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have access. Wilcox opened a working fund account with a
separate bank, and if Nicholson needed money from the working
fund, he would need petitioner's approval for the expenditure.
Wilcox asked Nicholson for additional assets to secure
petitioner's receivables, but Nicholson had none to pledge, other
than his stock in Northwest and his rights in two patents. By
this time Nicholson's house and car were highly leveraged, and he
had a minimal balance in his checking account. Nicholson
delivered his Northwest stock to petitioner as collateral for
petitioner's receivables. In an auditor's report dated August
21, 1989, petitioner's accountant recorded this transaction as a
purchase of the remaining 49 percent of issued and outstanding
Northwest voting stock from Nicholson on November 1, 1988, but
the accounting record does not disclose any purchase price.
Nicholson also transferred his patent rights to petitioner, but
those rights proved to be of no value.
Petitioner continued to ship coaches to Northwest, and all
of the units were shipped on credit, with the cost of the unit
carried on petitioner's books as a units account receivable. The
value of approximately seven units that petitioner shipped to
Northwest before October 28, 1988, was included as part of
petitioner's bad debt deduction for 1989. Most of the units that
petitioner shipped to Northwest from October 28, 1988, through
June 30, 1989, were written off as bad debts by petitioner on
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