The loans made during 1955 amounted to $4,685.00 and were charged to the accounts of the other three partners. When Goodwin withdrew during that year, his withdrawals at that time equated his capital contributions and nothing more was then due to him.
On January 1, 1956 the remaining three partners formed a new partnership, and the loans to the corporation still being outstanding, the capital accounts of the three remaining partners were adjusted to charge them respectively with one-third of the aggregated advances for the years 1953 to 1955 inclusive.
Warsaw Products, Inc. continued to flounder during the years 1953, 1954, 1955 and 1956, showing net operating losses for those years, respectively, of $8,156.36; $3,987.14; $6,870.01 and $6,774.17.
On March 1, 1957 Goodwin sold all of his capital stock in the corporation to the partnership then composed of his three former partners, including the qualifying nominal shares which he had transferred to his wife.
At, or about, the time that the Goodwins' stock purchase was made by the partners, the latter sought legal advice and thereafter decided to incorporate the partnership's management-consultant business. Rather than form a new corporation, as they already owned the inactive woodworking corporation, they decided to transfer the partnership assets and business to their own corporation, of which they were the sole stockholders.
The partnership balance sheet prepared as of March 31, 1957 stated the gross assets as $65,101.12, liabilities $20,103.84, with a resulting net worth of $44,997.28 (of which $20,103.84 comprised partnership's loans to Warsaw Products, Inc.) in unequal capital account proportions, as to each one. During this same period, they advanced an additional $2,500.00. All of the partnership business, as well as its assets and liabilities, was transferred to the corporation, but the corporation liquidated its loans from the partnership by payment to the individual partners. The factual consequence of the transfer was that Warsaw Products, Inc. obtained additional assets and liabilities, but the assets were more than sufficient to offset the liabilities. Thereafter, the corporation name was changed from Warsaw Products, Inc. to The Work-Factor Company, Inc.; the three equal partners and sole owners of the corporation ceased functioning as a partnership, and together with their former partnership employees confined their business operations to the management-consulting enterprise.
On June 30, 1957, after the mortgage loan had run its full term, the corporation finally sold its land, factory building and part of its machinery and equipment at a net loss of $14,228.02.
As of December 31, 1957 the net operating losses of the corporation for the five consecutive preceding years aggregating $38,595.71 were as follows:
Net loss for year 1952 $ 10,808.03
Net loss for year 1953 8,156.36
Net loss for year 1954 6,987.14
Net loss for year 1955 6,870.01
Net loss for year 1956 5,774.17
Total $ 38,595.71
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