- 11 -
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