CAPITAL STOCK IN AN--S-CORPORATION

[Dan]

Question 1: Can a S-Corporation have $500 on Schedule L, Line 22 (Capital Stock) of the Balance Sheet?

In the certificate of Incorporation it says, "The aggregate number of shares which the corporation shall have authority to allot is 1,000 which is divided into one class of common stock having no par value."

Question 2: How does one change the amount in question 1 to another entry on the balance sheet?

Question 3: What happens if you have a negative amount in Schedule M-2, line 8 "Balance at end of tax year?

Look forward to your replies.

[Dan]

The above questions were in regard to the 1120S return. Does anyone have the answer?

[Arche1]

Question 1: Can a S-Corporation have $500 on Schedule L, Line 22 (Capital Stock) of the Balance Sheet?

In the certificate of Incorporation it says, "The aggregate number of shares which the corporation shall have authority to allot is 1,000 which is divided into one class of common stock having no par value."

Question 2: How does one change the amount in question 1 to another entry on the balance sheet?

Question 3: What happens if you have a negative amount in Schedule M-2, line 8 "Balance at end of tax year?

Look forward to your replies.

considering the insignificant amounts whats the difference, who is looking or cares, Sch L & m probably not even required!

[taxxcpa]

The par value has nothing to do with the amount for which stock is sold. You may need to check how S-Corp stock is to be valued when the company is formed. There must be some rules, but I don't know off-hand what they are.

The assets contributed would have some bearing, but you need to know how to split it between Capital stock and other equity.

[jainen]

>>how to split it between Capital stock and other equity<<

In my opinion, other equity might look a lot like a second class of stock.

[OldJack]

Question 1: Can a S-Corporation have $500 on Schedule L, Line 22 (Capital Stock) of the Balance Sheet?

Yes, and that would relate to a certain number of shares that were issued. Since the issued stock is "no par" the $500 can be any number of shares up to the 1,000 authorized by the certificate of incorporation.

In the certificate of Incorporation it says, "The aggregate number of shares which the corporation shall have authority to allot is 1,000 which is divided into one class of common stock having no par value."

1,000 shares is the max that can be issued unless they go back to the state to get more authorized.

Question 2: How does one change the amount in question 1 to another entry on the balance sheet?

You don't change the amount as it represents the amount paid by the shareholder for the shares.

Question 3: What happens if you have a negative amount in Schedule M-2, line 8 "Balance at end of tax year?

You say "oh my.. we lost money" or "there is an error in the books because someone does not know what they are doing".

[Dan]

Thanks OldJack for your responses.

Concerning the last one: What do you mean with the statement "there is an error in the books because someone does not know what they are doing?"

What I have read in 1120S instructions is that "the AAA may have a negative balance at the end of the year."

This S-Corporation has had a loss in the past two years and has taken property distributions besides. No property distribution is taken in 2009.

In the next year, what can be done to make the AAA a positive balance?

[taxxcpa]

Thanks OldJack for your responses.

Concerning the last one: What do you mean with the statement "there is an error in the books because someone does not know what they are doing?"

What I have read in 1120S instructions is that "the AAA may have a negative balance at the end of the year."

This S-Corporation has had a loss in the past two years and has taken property distributions besides. No property distribution is taken in 2009.

In the next year, what can be done to make the AAA a positive balance?

The only way you could make the AAA positive is to make a profit.

Consequently, the Retained Earnings can vary from the AAA.

The AAA can be negative due to losses, but cannot be reduced below zero by shareholder withdrawals.