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recognizing this transaction cost, the partnership included it in
the carrying cost of the LIBOR Notes. Although this method of
accounting was calculated to result eventually in the allocation
of all of the transaction cost to Kannex's partners, as long as
recognition of the cost was deferred, the capital accounts of
Kannex's partners were overstated, and Kannex's share of
partnership income was understated. According to the revaluation
worksheets, the partners' capital account balances as of the end
of FYE 11/30/89, were restated at fair market value as follows:
Kannex MLCS Southampton Total
$170,617,686 $603,976 $35,145,281 $206,366,943
(82.68%) (0.29%) (17.03%) (100%)
Had the $1,093,750 discount been recognized and allocated, say,
entirely to Southampton at this time, Kannex's pro rata interest
in partnership assets and share of partnership income would have
been .4402742 percentage points higher and Southampton's .4402742
percentage points lower:
Kannex MLCS Southampton Total
$170,617,686 $603,976 $34,051,531 $205,273,193
(83.12%) (0.29%) (16.59%) (100%)
This .4402742 percentage point discrepancy corresponds to
Kannex's allocable share of the discount:
$205,273,193 x .4402742% = $903,765 = $1,093,750 x
82.63%.
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