accounting 1 - not tax question

[michaelmars]

S corp w/ 4 partners common stock 200,000 2 partners bought out other 2 partners for 300,000. how do i book this? Wish i had an acct'g 1 text book handy.

btw-i got the email to renew, hit reply with what is are the updates to the program you are going to teach me in a seminar worth $179. i actually got a call back but the call said "i don't know, its not written yet, but i am sure it will have improvements"

[kcjenkins]

Well, I know with the early renewal that 'training' is free, but frankly, that may be more than it's worth, at 'free'. It sure would not be worth $179. I was foolish enough to pay for a training seminar this year, thinking that they might teach me something about the new stuff, client write up and document manager, and that would be worth my time to not have to figure it out by myself. WHAT A WASTE. There was NOTHING about either of those, and the tax program presentation was worse than I could have imagined anyone could mess it up. If I had not won back the price at the casino as I left the seminar, I'd have been totally PO-ed, instead of just disgusted that I had wasted an entire day on something that was that poorly presented, by people who knew a heck of a lot less about the program than I did. Of course, the fact that they were TaxWise employees, who had been there to give the TaxWise training the day before, could explain that. Just did not explain WHY they sent them without teaching them something about the program first?

[kcjenkins]

S corp w/ 4 partners common stock 200,000 2 partners bought out other 2 partners for 300,000. how do i book this? Wish i had an acct'g 1 text book handy.

Do you mean how to book it on the S Corp books? The sale does not affect the S Corp, except that the stock ownership changes. The sale, tho, is between the old owner and the new. The seller may have a gain or a loss, the buyer has an increase in his capital account equal to the capital account he 'bought'. Any difference is an adjustment to 'outside basis', not inside the corp books. Hope that helps.

[michaelmars]

yikes totally misstated the issue, the corp bought out the 2 guys with borrowed funds. thus the treasury stock. Sorry i was here till 2 am last night working. so yeah how do i book it on the s corps books. the corp borrowed 300m to buy out to shareholders. total common stock on bks is 200,000 for 4 shareholders.

[jklcpa]

For the loan proceeds:

Cash $300,000

Loan Account ($300,000)

For the stock redemption by S Corp:

Treasury Stock $300,000

Cash ($300,000)

If you were doing financials, the equity section appears like this:

Common Stock $ 200,000

Add'l Pd In Cap 0

Retained Earnings (AAA) 1,000,000 I made this up, S corp could have PTI, AAA, OAA, etc

Subtotal 1,200,000

Less: Treas Stock ( 300,000)

Total Stkholders Equity 900,000

[Maribeth]

yikes totally misstated the issue, the corp bought out the 2 guys with borrowed funds. thus the treasury stock. Sorry i was here till 2 am last night working. so yeah how do i book it on the s corps books. the corp borrowed 300m to buy out to shareholders. total common stock on bks is 200,000 for 4 shareholders.

Mike, don't have a 101 textbook around either but I believe the entry is just to a new account in the equity section called "Treasury Stock". In my state we cannot have treasury stock, so the entry would be a reduction in the common stock account by the par value of the stock redeemed and whatever is left over would go to retained earnings.

hth,

Maribeth

[michaelmars]

WHAT IT stock is 200,000 and retained earnings is 50,000 the 300,000 treas stk makes equity negative. is that ok?

[Maribeth]

WHAT IT stock is 200,000 and retained earnings is 50,000 the 300,000 treas stk makes equity negative. is that ok?

That's correct. The treasury stock transaction can make your equity secton negative. A prof told me that the theory is that the retiring owners had withdrawn their portion of the goodwill in the company but because the balance sheet is historical cost, the remaining goodwill had not been booked. That creates the negative equity section.

Maribeth

[michaelmars]

thank you everyone for the lesson! i bet if one of my interns was in the last 2 days they could have answered right away!