Rameau A. and Phyllis A. Johnson - Page 77

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            collection from the purchaser or deposited in the PLRF pending                            
            ultimate disposition.  They could be released from the PLRF as a                          
            cancellation refund, payment for covered repairs, or a                                    
            distribution of unconsumed reserves.  Thus, the following six                             
            cases cover all possibilities for the ultimate disposition of the                         
            unreported amounts:                                                                       
                  (1) Payment for Premium, Commissions, or Fees;                                      
                  (2) refund upon cancellation of the contract;                                       
                  (3) release to another repair facility to pay for covered                           
            repairs;                                                                                  
                  (4) release to the Administrator upon expiration of the                             
            contract or termination of the Dealership’s participation in the                          
            program;                                                                                  
                  (5) release to the Dealership to pay for covered repairs; or                        
                  (6) release to the Dealership upon expiration of the                                
            contract or termination of the Dealership's participation in the                          
            program.                                                                                  
                  The Dealership's practice was to report income only when and                        
            to the extent that reserves were released to the Dealership under                         
            cases (5) and (6).  Amounts disposed of under each of the other                           
            cases were never recovered by the Dealership and hence would                              
            never have been reported as income.  The proper application of                            
            the accrual method is to include the full contract price in                               
            income for the year the VSC was sold and, to the extent that the                          





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