Wagner Construction, Inc. - Page 13

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               Effective November 1, 1991, petitioner changed its method of           
          accounting for tax purposes from the cash method to the accrual             
          method.  Petitioner realized a section 481(a) adjustment of                 
          $1,637,156 on account of the change in accounting methods.                  
          Petitioner included $409,289 of the adjustment in income in each            
          of the 4 taxable years ending October 31, 1992 through 1995.                
          Since November 1, 1991, petitioner has used the accrual method of           
          accounting for tax purposes and for financial purposes.                     
               Petitioner engaged accountants to prepare financial                    
          statements and reports for its operations.  For the taxable years           
          ending October 31, 1986 and 1987, the accountant prepared                   
          combined financial statements for petitioner and Wagner & Wagner.           
          Those statements show the following balance sheets:                         

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