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2. Interest Income
During the calendar years 1992 and 1993, Exacto was indebted
to Mr. and Mrs. Heitz in the approximate amount of $2 million.4
In 1992 and 1993, Exacto made monthly accruals of the interest
due to Mr. and Mrs. Heitz in the amounts of $217,056 and
$268,955, respectively. These monthly accruals were deducted by
Exacto in the appropriate fiscal years.
Exacto made payments in varying amounts and at irregular
intervals on the loans from Mr. and Mrs. Heitz. Payments
designated as interest were made in lump sums and only in May
and/or December of each year. Mr. and Mrs. Heitz reported
$130,000 and $162,000 as the amount of interest paid to them by
Exacto during the years 1992 and 1993, respectively. However,
because the interest was not paid until several months after it
was accrued by Exacto, Mr. and Mrs. Heitz did not report $87,056
($217,056 - $130,000) and $106,903 ($268,955 - $162,052) accrued
and deducted by Exacto for those calendar years.
Mr. Heitz, as president and chief executive officer of
Exacto, was responsible for overall company finances. On
4 On May 1, 1993, Mr. Heitz transferred the note receivable
to the name of Mrs. Heitz. The amount of Exacto's indebtedness
to Mr. and Mrs. Heitz fluctuated in 1992 and 1993 as Exacto made
principal payments or borrowed additional funds from Mr. and Mrs.
Heitz.
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