Perry Funeral Home, Inc. - Page 6

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          Petitioner’s Accounting and Tax Reporting                                   
               Petitioner is an accrual basis taxpayer.  For accounting               
          purposes, petitioner records payments received pursuant to                  
          preneed contracts as liabilities under the designation                      
          prearranged funerals.  Petitioner does not recognize as income              
          payments recorded on its books and records as prearranged                   
          funerals until the tax year in which the goods and services are             
          provided.  Petitioner does recognize interest and dividend income           
          earned on the investments, exclusive of the BayBank escrow                  
          account, into which the preneed funds are deposited.                        
               Petitioner filed Forms 1120, U.S. Corporation Income Tax               
          Return, for 1996, 1997, and 1998 consistent with the foregoing              
          approach.  Attached to each return is a Schedule L, Balance                 
          Sheets per Books.  These Schedules L reflect as “Other                      
          investments” the following balances in petitioner’s investment              
          vehicles, including the BayBank escrow account:                             
               Year              As of Jan. 1             As of Dec. 31               
               1996           $2,270,655                    $2,431,946                
               1997           2,431,946                     2,515,217                 
               1998           2,515,217                     2,503,934                 
          Also on the Schedules L, petitioner included in “Other current              
          liabilities” the following amounts for prearranged funerals:                
               Year              As of Jan. 1             As of Dec. 31               
               1996           $1,587,416                    $1,612,272                
               1997           1,612,272                     1,614,929                 
               1998           1,614,929                     1,543,284                 






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