- 6 -
FY 1995 FY 1996
Gross receipts $12,501,980 $5,709,686
Cost of goods sold 6,128,126 1,473,083
Gross profits 6,373,854 4,236,603
Net income 1,087,759 398,858
Total tax 300,374 123,769
Net income per books 742,910 268,326
Ratio of gross profits
to gross receipts 51% 74%
Petitioner reported the following shareholder equity during
the years at issue:6
FY 1995 FY 1996
Common stock $2,770 $2,770
Retained earnings 793,574 1,061,900
Equity 796,344 1,064,670
Net income per books 742,910 268,326
Return on equity 93% 25%
6 Petitioner’s common stock value and retained earnings were
reported on its Forms 1120, Schedules L for the fiscal years at
issue.
Because of the spinoffs, the value of petitioner’s common
stock was reduced from $3,000 to $2,770.
Petitioner’s equity was computed by adding petitioner’s end-
of-year common stock value to its end-of-year retained earnings.
Rate of return on equity is computed by dividing petitioner’s net
income per books by its equity for the respective fiscal years at
issue.
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