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loss of $149,801. During 1990, petitioner had "art and printing
department" expenses of $1,817,957 and income of $1,810,992,
resulting in a loss of $6,965. During 1989, petitioner had
"advertising department" expenses of $1,400,535 and income of
$966,654, resulting in a loss of $433,881. During 1990,
petitioner had "advertising department" expenses of $1,050,053
and income of $918,231, resulting in a loss of $131,822.
In petitioner's accounting records, the income reflected in
the art and printing department account and the advertising
department account included revenue from the vendor promotional
accounts. However, the promotional accounts were not the only
source of revenue for these accounts.
Petitioner's art and printing department had a staff of 24
professional artists and printers. They produced printed
advertising material for member stores, including full color
circulars, handbills, shelf and stack signs, and newspaper
layouts. The advertising department provided member stores with
advertising and promotional programs, and coordinated a 23-week
television campaign during the years at issue. It also planned
for grand openings, anniversary sales, and other special events
for member stores.
On its financial statements for the years at issue,
petitioner reported the unspent promotional account funds as
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