David K. Straight - Page 9

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          many purchase agreements had been signed in each year since 1986            
          that had not been fulfilled by delivery of a house kit (open                
          agreements) by July 28, 1990.  Gross calculated the percentage of           
          purchase agreements signed in each year that had been fulfilled             
          by the delivery of a house kit (closed agreements) by July 28,              
          1990.  Gross then applied these percentages to the number of                
          agreements open on July 28, 1990, to project the number of                  
          contracts that would close within 4 years.  Gross estimated that            
          293 of the 515 contracts open on that date (57 percent) would               
          never close.                                                                
                    c.   Eagle's Accounting for Deposits                              
               Eagle did not maintain a separate bank account for the                 
          deposits.  Eagle deposited them in its general operating account            
          and used them to pay its current expenses.                                  
               Eagle first included customer deposits in income based on              
          the 1990 study for its tax year ending July 28, 1990.  For its              
          tax year ending July 28, 1990, Eagle included in income 57                  
          percent of all unapplied customer deposits at the end of that               
          year.2  Eagle recorded the 43 percent of customer deposits which            
          it had not reported as income as a liability.3                              

               2 Unapplied deposits are deposits for houses for which Eagle           
          did not receive all of the purchase price in that year.                     
               3 Eagle recorded the amount of its unapplied deposits in a             
          liability account.  Eagle reported unapplied deposits in income             
                                                             (continued...)           






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