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percentage of the interest accrued and reported, based on the
cumulative outstanding yearend balances, ranged from a low of 4.7
percent to a high of 11.3 percent. Using a weighted average for
the eight accruals of interest, the average rate of interest
accrued would have been 7.3 percent. If interest at 7.3 percent
had been accrued and reported on all of the outstanding
cumulative balances of the sister corporations, petitioner would
have reported approximately $400,000.3
If a creditor would have charged 7.3 percent interest during
the period under consideration, then petitioner by reporting
$175,622 in interest reported approximately 44 percent of the
interest that should have been accrued.4 The apparent rate of
interest accrued by petitioner, however, appears to be far below
the going rate. During the early 1980s, the prime rate was in a
precipitous climb and would eventually exceed 20 percent before
the end of the decade. See, e.g., Finkelman v. Commissioner,
3 These amounts were calculated from Exhibit 21-U by adding
the outstanding balances for 22 accounting periods--eight for
First World Corp. and 7 each for Cerand Aviation Inc. and Airport
Services Corp. and then applying simple interest at 7.3 percent.
It should be noted that with respect to Airport Services Corp.,
no advances were made after its 1988 year, but it did not become
defunct until sometime in 1990. Accordingly, its $65,650
cumulative balance was considered outstanding for 1989 and 1990.
4 Because petitioner accrued interest only in 8 of 22
accounting periods, the interest being accrued is essentially on
a simple interest basis; i.e., interest was not accrued or added
to the cumulative balances for 14 of 22 accounting periods.
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