Sale of S corp stock by sole owner

[Gran]

I appreciate feedback on this topic. Thinking through the entries to clean seller's equity off balance sheet and entering purchaser's equity, noted that funds did not go through the S corp bank accounts. So debit the seller's equity accounts for 10K, and credit the purchaser's stock account for 30K--where does the debit for 20K go???

Then thinking how this looks on the tax return.

Sole owner of S corp sells all of the stock, so:
1. owner walks away from business with ONLY dollars received, and leaves all cash, assets, liabilities in tact for new owner
2. new owner is qualified as S corp owner so the corp continues using same EIN
3. seller actually walked away with dollars received for stock and took some cash from checking account---purchase price of corp now becomes total of those two transactions.
4. seller's K1 will show results of operation through sales date and NET capital gain on sale (purchase price less basis)
5. purchaser's balance sheet now reflects common stock valued at purchase price.

[Lion]

Seller has a Schedule D/Form 8949 transaction for the sales proceeds, his adjusted basis, and profit/loss. Seller has a K-1 for the time he was a shareholder, if the books were closed/reopened for the company, or a K-1 pro-rated by days owned if books do not reflect the date your client left.

[kathyc2]

I appreciate feedback on this topic. Thinking through the entries to clean seller's equity off balance sheet and entering purchaser's equity, noted that funds did not go through the S corp bank accounts. So debit the seller's equity accounts for 10K, and credit the purchaser's stock account for 30K--where does the debit for 20K go???

Then thinking how this looks on the tax return.

Sole owner of S corp sells all of the stock, so:
1. owner walks away from business with ONLY dollars received, and leaves all cash, assets, liabilities in tact for new owner
2. new owner is qualified as S corp owner so the corp continues using same EIN
3. seller actually walked away with dollars received for stock and took some cash from checking account---purchase price of corp now becomes total of those two transactions.
4. seller's K1 will show results of operation through sales date and NET capital gain on sale (purchase price less basis)
5. purchaser's balance sheet now reflects common stock valued at purchase price.

This is a transaction between 2 individuals and not a individual and the corporation.
From what you described the only transaction that should be recorded on the books is to debit dividends and credit cash for the money seller took out.
Sellers gain or loss would then be determined by money received directly from buyer compared to his basis.
Buyer basis may well be different than the equity section showing on corporate books.

[ttbtaxes]

Withdrawn post