Help on S Corp - partners split mid year

[Absolut]

I have a S Corp client that I did in 2005, the partners were Bill & Jason. Jason decided to buy Bill out, they had him take the truck that the company had bought, but he had to refinance under his name (Bill), on what was left owed on the loan. Plus they gave him $500.00 for his share in the company.

My delima is how do you do the 1120S? I can run a P&L for 1/1/06 - 06/01/06 than from 06/02/06 - 12/31/06 easily enough, but running a Balance sheet isn't quite so simple in QuickBooks. Plus what about depreciation? How do you split this up?

Do I have to do two seperate 1120S?

Any help would be appreciated, never had this situation before, so it's new to me. If you need more information please let me know..... Thank you in advance.

[veritas]

You are going to do

one 1120S.

But first you have a sale of a corporate asset, namely the truck.

You can elect to close the books on the date of sale. This election requires a signature and is included with the return.

Or you can use a weighted average based on the number of days the stock was owned by the shareholders. Your software hopefully can handle this.

Personally I would go with cutting off the books.

[Absolut]

S Corp - Partners split mid year

one 1120S.

But first you have a sale of a corporate asset, namely the truck.

You can elect to close the books on the date of sale. This election requires a signature and is included with the return.

Or you can use a weighted average based on the number of days the stock was owned by the shareholders. Your software hopefully can handle this.

Personally I would go with cutting off the books.

My Proseries will do the weighted average, I can show Bill had no shares after 6/1/06. The problem with ending the books on 6/1/06 is that the company still carried on after Bill left, and kept everything in QuickBooks flowing for the rest of the year.

I was thinking along these lines: take the truck off the books for what is owed on the day of Bill got bought out of the business. Let's say the balance owed on the loan was $25,000.00, Bill gets a new loan to payoff the old loan, and keeps the truck. Jason doesn't get anything from the sale, it's basically given to Bill with the understanding he gets the new loan (which he did). so you'd Debit the loan for the amount owed and Credit Bill or Retained earnings? Than you would have to show the sales on your depreciation schedule and take the truck off the books under fixed assets, correct?

[veritas]

I don't understand

the problem. The books should be carried forward. You will have to enter the departing shareholder's share of income, deductions and credits as a override on the K-1 as of the date of sale. The balance will go to the remaining shareholder.

You can not "take the truck of the books". It is a sale at fair market value which could be more or less than the loan balance . The loan balance assumed or paid of is part of the sales price.

[Absolut]

On the Truck

I understand what your saying you can't just "Take" the truck off the books, but you to. Do I get a Bluebook value on as of the date he left the S Corp? Say the Corp still owed $25,000 on the truck but Bluebook was only $23,000, where are you putting the $2,000 difference? And where is the $500 for the shares allocated too?

[OldJack]

First you should correct your thinking of these shareholders as "partners". This is not a partnership it is a corporation and the corporation continues with or without Bill. The only thing on the books about Bill is that he will get a 1120S-k1 for his part year share of profit/loss and tax attributes which will include the sale of the truck at FMV.

Bill has agree to sell his shares of stock to the company in exchange for the truck (assuming the loan) plus cash. Assuming the Fair Market Value of the truck is $26,000 the entry on the S-Corp books would be something like this:

1. $ 10,000 Debit/increase "Accumulated Depreciation - Truck"
2. $ 35,000 Credit/decrease "Truck Cost" $
3. $ 26,000 Credit/increase "Gain on Sale of Assets" [25,000 loan + (FMV 26,000-25,000 nbv=1,000 gain)]
4. $ 25,000 Debit/decrease "Loan on Vehicles
5. $ 500 Credit/decrease "Cash in Bank"
6. $ 26,500 Debit/increase "Treasury Stock at Cost"

Ironically the $26,000 gain on the sale is allocated to all shareholders (on a per share basis) on the 1120S-k1.