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that took into account its sales and profit for that year,
Beiner’s work during that year, and the amount of its profit that
it needed to retain at the end of that year for its operation
after that year.
F. Petitioner’s Financial Condition
Petitioner was established with a capital contribution of
$7,000. As of December 31, 1999 and 2000, petitioner reported
that its shareholder equity consisted of the following:
1999 2000
Common stock $7,000 $7,000
Retained earnings 365,513 747,857
372,513 754,857
For 1999 and 2000, petitioner’s gross and net sales
(collectively, sales), costs of goods sold, gross profits,
taxable income, total taxes, and net income, each as reported,
and the ratios of its gross profits to its sales, expressed as
percentages, were as follows:
1999 2000
Sales $3,473,802 $3,485,568
Cost of goods sold 1,760,084 1,064,976
Gross profit 1,713,718 2,420,592
Taxable income 143,926 579,984
Total tax 39,381 197,195
Net income 104,545 382,789
Ratio of gross profits to sales 49.3 69.4
In petitioner’s first taxable year of operation, a period of
32 weeks that ended on December 31, 1991, its sales totaled
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