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A “Recap of Bill of Sale” (recap) provided the following
allocation to the purchase:
New vehicle inventory $(6,183)
Parts inventory 174,673
Oil & grease inventory 1,308
Furniture & fixtures 50,000
Business taxes 2,838
Work-in-process and sublet
inventories 754
Prepaid expenses 6,250
Expense of physical inventory 176
Goodwill 10,000
Covenant noncompetition
agreement 290,000
Miscellaneous obligations (201,349)
68,468
1396,935
1We note a $754 difference between the $396,935 bill of sale recap and
the $396,181 amount paid by Matthew B. West, Inc., on Jan. 5, 1995.
Mr. Johnston initialed the recap reflecting the allocation of
$290,000 to the “Covenant NonCompetition Agreement.”
On January 12, 1995, Don Johnston, Inc., paid Mr. Johnston
$200,000 and paid Wilson Ford $250,000.20 Mr. Johnston signed
both Don Johnston, Inc., checks.
Mr. Johnston did not report any income from the
noncompetition agreement with Matthew B. West, Inc., on his 1994
or 1995 Federal income tax returns. Don Johnston, Inc., did not
report any income from the noncompetition agreement with Matthew
B. West, Inc., on its Federal income tax returns.
Don Johnston, Inc., booked the payments for the
noncompetition agreement with Matthew B. West, Inc., as a payable
20In 1990, Wilson Ford was an automobile dealership
controlled by Mr. Johnston.
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