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million, of which $2.4 to $2.5 million was owed to petitioner.
Northwest had lost $1,663,189 in its year ended December 31,
1988, and through June 1989 had lost approximately $600,000.
After Golden had the Axley & Rode tax department research the
question, he advised petitioner to deduct the Northwest
receivables as a bad debt.
By the end of June 1989, petitioner believed that Northwest
could not pay, and did not have the potential to pay, the
existing receivable balances. Mr. Fore was concerned that
Northwest's situation could cause bad publicity among potential
customers and have a negative impact on petitioner.
On June 30, 1989, petitioner wrote off as a bad debt the
following items attributable to Northwest: Trade accounts
receivable in the amount of $54,438.13, which included
advertising, insurance, and other expenses that petitioner paid
on Northwest's behalf; notes receivable in the amount of
$885,373.10; and unit accounts receivable in the amount of
$1,758,847.50. The notes receivable in the amount of $885,373.10
consisted of the note dated October 11, 1988, in the amount of
$345,000, the note dated November 4, 1988, in the amount of
$385,000, and the note dated May 24, 1989, in the amount of
$132,390.10. The remaining $22,983 in the notes receivable
account consisted of the loan to Northwest in 1985 when
petitioner acquired 51 percent of Northwest's stock.
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