Edward G Smith and Jan M. Smith - Page 6

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          craftsmanship in hand-cutting and incorporating custom designs,             
          such a corporate logos, into flooring jobs.  Smith Floors enrolls           
          its employees in annual training programs where the employees are           
          instructed (and certified) in the installation of various                   
          flooring materials.                                                         
               During 1995, Smith Floors had a total of 836 jobs:  555 jobs           
          required Smith Floors to purchase and install flooring materials            
          and 281 jobs required Smith Floors to provide installation-only             
          services.  Smith Floors’ has provided flooring installation                 
          services for a number of large companies including Albertson’s              
          (grocery stores), Marriott (hotels), Walgreens (drug stores),               
          Pacific Theaters, and Walt Disney Corporation, as well as the               
          U.S. General Services Administration.  Smith Floors frequently              
          installs either proprietary or custom-designed flooring                     
          materials.  Normally, the companies contracting with Smith Floors           
          negotiate the price of such flooring materials in advance                   
          directly with the manufacturer of the flooring materials.                   
               Smith Floors has consistently used the cash method of                  
          accounting to prepare its corporate income tax returns.  Smith              
          Floors routinely assigns a value of $15,000 to its inventory from           
          year to year to account solely for flooring installation                    
          materials on hand such as glue/adhesives, nails, cap metal, and             
          cove stick.  Smith Floors does not consider flooring materials              
          and padding on hand at the end of the year to be inventory                  

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Last modified: May 25, 2011