- 8 - accrued interest of 10 percent but did not require regular interest or principal payments. In January 1988, petitioner conveyed a line of credit to BEI in the amount of $15 million. BEI issued to petitioner, in exchange for the line of credit, a promissory note that provided for interest to accrue at 10 percent and for payment of the principal and interest on January 1, 1994. In October 1988, petitioner also conveyed a line of credit to TELCOR in the amount of $1.75 million that was evidenced in a note with the same terms as the BEI note. Regular payments of principal or interest were not required under the notes. Petitioner's prior advances to BEI and TELCOR were accumulated into the two line-of-credit notes, and BEI and TELCOR could draw against the line of credit for additional advances up to the maximum stated in the notes less the amount of the prior advances. The first set of notes that had been executed on behalf of BEI, TELCOR, and the TELCOR subsidiaries (described above) were treated by the companies and petitioner as consolidated into the two line-of-credit notes. Both BEI and TELCOR had negative shareholder's equity accounts and deficits in their retained earnings accounts as follows for fiscal years ending October 31: BEI Year Retained Deficit Shareholder's Equity 1987 ($2,427,382) ($2,002,419) 1988 (7,384,635) (6,959,672) 1989 (10,775,987) (9,671,195)Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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