Choate Construction Co. - Page 11

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            Percent                Bonus as      Officers'  Percent of                                   
            of stock               percent of       total     officers'                                  
            Officer  ownership     Bonus    bonus pool        pay     total pay                          
            Choate      85       $935,000     82.75       $1,010,000     72                              
            Dudley       5         65,000      5.75          134,250     10                              
            Freese       5         65,000      5.75          121,000      9                              
            Barrett      5         65,000      5.75          121,000      9                              
            $1,130,000    100.00       $1,386,250    100                                                 
            Choate set these bonuses based on performance, but he did not use                            
            a formula to compute them.                                                                   
                  Choate required Dudley, Freese, and Barrett to lend their                              
            1992 bonuses to petitioner.                                                                  
            G.    Petitioner's Gross Sales, Taxable Income, and Retained                                 
                  Earnings                                                                               
                  Petitioner grew dramatically during its first 3 years.                                 
                  Petitioner reported income on its audited financial                                    
            statements under the percentage of completion method of                                      
            accounting and reported income on its income tax returns under                               
            the completed contract method of accounting.  Petitioner's gross                             
            sales, taxable income, and retained earnings under those two                                 
            accounting methods are as follows:                                                           
                        Gross sales                        Taxable income                                
                        Completed   Percentage Completed Percentage                                      
                  Year  contract    completion contract completion                                       
                  1990  $1,484,188  $4,809,514  ($218,807) $228,317                                      
                  1991  15,599,142  16,984,287     37,840   675,849                                      
                  1992  26,066,541  30,042,011  1,101,512   381,409                                      












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Last modified: May 25, 2011