Any balance sheet gurus here? Need help, please.

[Safire]

3 investors purchase an ongoing business.

Business cost $225k.
$100k paid down on business, remaining 125K to be paid in installments.
$150k placed in a new checking accoung for working capital.

Investor A gets 800 shares stock for $225K cash invested

Investor B gets 100 shares stock for $25k cash invested

Investor C gets 100 shares stock for services and expertise to be rendered.

They have stock agreement that states a par value per share of $250.00

Without Investor C, this would be a piece of cake, but how do I account for Investor C without him placing cash or property worth $25K into the business?

Seems to me I have 1000 shares of stock worth $250k, but investors with a total basis of $275k.

[Bird Legs]

Basis-stock

C will receive a W-2 for services rendered, in the same amount that B paid for his
stock. The amount shown on W-2 for C is subject to FIT-FIC/MC withholding.
Of course, C received no cash for this, but he did receive stock.
So, if B & C received the same number of shares then the amounts would be the same.

[Safire]

Thanks!

How would I keep the W-2 from showing up as an expense? Or would it be correct to have it show up as an expense?

[OldJack]

How would I keep the W-2 from showing up as an expense? Or would it be correct to have it show up as an expense?

Show up is exactly the entry. Debit W2 gross wages, credit payroll taxes withheld, credit common stock issued in the equity section and the paper certificates then issued. You will probably have to gross-up for withholding to get the net to agree for the correct dollars of shares issued.

[Safire]

Thanks Jack.

Would it be at all possible to issue him a 1099 for this? Then he could pay all tax involved with the transaction.

He is not an employee on the books as I understand it. He has and is just helping out with various things to get the business going. He is not tole when to come in to help out, he just does so as he wants to.

[OldJack]

If he does not meet the status of an employee then he would be an independent contractor reported on a 1099Misc as non-employee compensation subject to income tax and SE tax. If that is the case then the entry would be something like debit "consulting expense" and credit common stock issued.

[JON]

Start up

maybe what it is called and amortized as such.

[OldJack]

maybe what it is called and amortized as such.

I have always thought that startup expense occurred before the business entity and/or the first business transaction.

[Safire]

It turns out that this is a 67 year old man who was brought in for his "reputation" in the business. I doubt he will be happy with knowing that he will have to pay tax & SE tax on 25k.

He has purchased some equipment for the business, so I believe that we will be able to offset some of the income by the assets that he aquired and brought to the business.

[Unregistered]

Thanks Jack.

Would it be at all possible to issue him a 1099 for this? Then he could pay all tax involved with the transaction.

He is not an employee on the books as I understand it. He has and is just helping out with various things to get the business going. He is not tole when to come in to help out, he just does so as he wants to.

All the shareholders are statutory employees.

[OldJack]

All the shareholders are statutory employees.

First time I ever heard of that. Could you provide some reference that as I own shares of General Motors Corp that I am a statutory employee of the same? I'm still waiting for my first paycheck.

[Armando Beaujolais]

It turns out that this is a 67 year old man who was brought in for his "reputation" in the business. I doubt he will be happy with knowing that he will have to pay tax & SE tax on 25k.

He has purchased some equipment for the business, so I believe that we will be able to offset some of the income by the assets that he aquired and brought to the business.

All corporate officers are statutory employees (while doing corporate officer stuff).

You need to split out how much of the stock is for services rendered, and how much of the stock is for reputation. If he's compensated for working, that's subject to payroll tax. If it's just a matter of letting the company put his name on the letterhead, that's more like a royalty.

[Safire]

Thanks for the help everyone.

I still have the problem of stock with a stated par value of $250K having to be spread out over $275k worth of cash and "reputation"

Which ever way it has to be reported to Investor C, what account will be offset in the balance sheet?

Capital stock would have to remain at $250K right? It is stated in the stock agreement that the par value is $250 per share and there are 1000 shares.


Or should they have their stock agreement rewritten to show the value of the "reputation"?

[veritas]

First time I ever heard of that. Could you provide some reference that as I own shares of General Motors Corp that I am a statutory employee of the same? I'm still waiting for my first paycheck.

I meant to say thet shareholders who provide services for the corp are statutory employees. Hope you come out with that GM stock.