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use the cash basis method of accounting--had been a "mutual
mistake". Therefore, as of January 1, 1988, W & A changed its
method of accounting from the cash method to the accrual method.
There was no formal termination agreement for the W & A employee
leasing program. Instead, a flurry of journal entries closed out
W & A's existence. Journal entries for January 1, 1988, reflect
that W & A had a issued a credit to MPC in the amount of $397,431
and reversed a late charge of $199,202. This caused W & A's
receivable balance from MPC to equal $3,586,603.27. Additional
journal entries indicate that W & A then assigned its $3,586,603
receivable from MPC to BBPA in exchange for a receivable from
BBPA in that amount. This assignment brought the total amount
due from BBPA to W & A to $4 million.
On the same day, a W & A journal entry recorded the
distribution of this $4 million receivable from BBPA to its
partners. The partners were deemed to have received this capital
distribution pro rata. BBPA reflected this distribution by
reclassifying the $4 million payable as being payable to the
W & A partners, not to W & A itself. At this point, since the
W & A partners owed BBPA $4 million pursuant to their
27For the year 1987, after the payroll and other costs had
been paid, W & A had issued a bill to MPC in the amount of
$3,984,034, plus accrued interest--a late charge--of $199,202,
for a total receivable due of $4,183,236. The amount accrued by
Machise was more than the 105 percent of the actual payroll costs
required by the employee leasing agreement. The charge of
$3,984,034 was the result of Fred's estimating the payroll costs
as $3,794,318 and adding 5 percent--in the amount of $189,716.
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