- 57 - Qulart's 12-percent note to Machise. For the year 1987, MIT 83, like the other partnerships, changed its method of accounting from the cash method to the accrual method. At the end of 1987, the cash paid and short-term notes issued by the partners in 1983 were still reflected by BBPA's line-of-credit note for $284,300 in favor of MIT 83. On December 31, 1987, Fred applied this note as a deemed distribution to the partners and the further use by them as partial payment of their notes to Qulart. The following illustration depicts the purported transactions and flows of funds to which MIT 83 was a party. Investment Program--MIT 83 A. Investment Phase 1. Partners issue 12-percent notes to Qulart in the amount of $2,888,666, representing ten elevenths of MIT 83's capital. (Fred and Bruce themselves execute $265,000 of such notes by mistake to Machise). 2. Qulart issues a 12-percent note to Machise for $2,888,666. 3. Machise issues a zero-percent demand note to Qulart for $2,888,666. 4. Qulart endorses the $2,888,666 note directly to MIT 83, allegedly at partners' request. 5. By virtue of the endorsement in No. 4, above, the partners are deemed to have invested $2,888,666 in the capital of MIT 83. 6. Pursuant to the employee leasing agreement, MIT 83 advances $2,888,666 to Machise by endorsing the zero- percent demand note to Machise.Page: Previous 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 Next
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