- 10 -
Almost all of the promotional accounts had a credit balance
at yearend. In fact, petitioner did not use any of the money in
several promotional accounts during the years at issue, e.g.,
Conagra Banquet Food/Pritchard, American Home Food Products,
Tropicana, Ragu Foods, Inc., Quaker/Gordon-Murdock, and Gortons
of Gloucester/Pritchard.
Mr. Terry Sheldon, a C.P.A., was petitioner's accountant
during the years at issue. Around mid-1988, petitioner's
management asked Mr. Sheldon to audit petitioner's advertising
department, because the department showed a large fluctuation in
income. Upon audit, Mr. Sheldon discovered that petitioner had
started the promotional accounts sometime during 1988. At that
time, petitioner was treating the promotional fund payments as
income when received and deducting expenses when incurred. This
accounting treatment was applied for both financial reporting
purposes and tax purposes. Beginning in 1989, petitioner stopped
treating promotional account payments as income on receipt.
Rather, petitioner treated promotional account receipts as
liabilities to the vendors. Petitioner then reduced the
liability to each vendor as it incurred expenses that were paid
from the promotional account. Most of the offsetting costs
incurred by petitioner were related to advertising costs.
During 1989, petitioner had "art and printing department"
expenses of $1,712,656 and income of $1,562,855, resulting in a
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011