OK CPAs, here's one which should be easy for you.
Tennessee has "no par" stock. Client began S corporation in 1995, and the outstanding stock was by charter "no par" stock, but valued at $42,000. This is carried in the balance sheet caption "Capital Stock" and has not changed. Volume and activity of the corporation has quadrupled over last dozen or so years, but no change in stock structure.
Stock, however, has been donated from original shareholders to children, to some extent. Don't see anything in the redistribution of stock which would change the $42,000 "capital stock" account.
However, Corporation has purchased from one of the daughters some 20% of the outstanding shares. Purchase price is $350,000. Carrying this debit as "Treasury Stock" shows negative total paid-in capital, easily. In fact, carrying this line item as a debit could even threaten to convert the entire equity section to a net debit.
YIKES!! Bank is consistently beating up client for certain trend items, one of them being "Debt to worth ratio." among other things.
My questions: Can the repurchase for $350,000 be carried in the equity accounts in a different manner, and, can the corporate stock be re-organized via corporate resolution to present a balance sheet more realistic and compatible?
This is a GAAP question, with obvious ramifications for the 1120S, page 4. Any CPAs out there? Old Jack, I'll even listen to you (for a change).
Tennessee has "no par" stock. Client began S corporation in 1995, and the outstanding stock was by charter "no par" stock, but valued at $42,000. This is carried in the balance sheet caption "Capital Stock" and has not changed. Volume and activity of the corporation has quadrupled over last dozen or so years, but no change in stock structure.
Stock, however, has been donated from original shareholders to children, to some extent. Don't see anything in the redistribution of stock which would change the $42,000 "capital stock" account.
However, Corporation has purchased from one of the daughters some 20% of the outstanding shares. Purchase price is $350,000. Carrying this debit as "Treasury Stock" shows negative total paid-in capital, easily. In fact, carrying this line item as a debit could even threaten to convert the entire equity section to a net debit.
YIKES!! Bank is consistently beating up client for certain trend items, one of them being "Debt to worth ratio." among other things.
My questions: Can the repurchase for $350,000 be carried in the equity accounts in a different manner, and, can the corporate stock be re-organized via corporate resolution to present a balance sheet more realistic and compatible?
This is a GAAP question, with obvious ramifications for the 1120S, page 4. Any CPAs out there? Old Jack, I'll even listen to you (for a change).
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