Credit Card Corp/Personal

[geekgirldany]

I have a new customer that I am working on cleaning up a few things in their QBs file. Their company was converted from Sole Prop. to S-Corp in Feb. 08. When she started using QBs she continued to use the Sole Prop's credit card in the S-Corp. Now it had a balance of around $25,000 prior to becoming an S-Corp. Of course QBs did its thing and she put the credit card's beginning balance under a Liability account. Which I know is wrong.

So I need to figure out what to do with this $25,000. The S-Corp can not take over the liability can it? I was thinking of putting it as a Loan To Shareholder and they would have to pay it back over time. I am not sure that is correct though. I've not encountered this so I would really appreciate any help.

Thank you

[veritas]

If the transfer documents provide

for assumption of the debt I would record it as a corporate liability. If not I would leave the debt off the balance sheet.

Since the debt is a credit card I am assuming that none of the assets transferred in are secured by the credit card debt.

I would definitely not record a shareholder loan, it would be a taxable event.

[geekgirldany]

Thanks so much.

Yeah I did not think the Loan To Shareholder sounded right but wasn't sure. She is in sales and there are no assets to transfer in. I don't have my S-Corp book in front of me and I was trying to do some searches for it on the net for this type of problem.

There is nothing on the assumption of the debt by the S-Corp. But if it was what accounts would be affected?

Just typing out loud so to speak She has been recording the credit card transactions in QBs... does not appear that she has been reconciling just importing the information into QBs... but the S-Corp has been paying the Credit Card bill....
Thinking if I could just clear it off the balance sheet like you say and the payments to the Credit Card could be reimbursement to the employee for expenses purchased on the credit card. Then divide off the expenses from there for the reimbursement and have them get a credit card in the S-Corp name.

[veritas]

No assets to transfer in?

If you transfer in liabilties in excess of assets you will have a taxable event.

The $25,000 if used for the sole proprietorship should all be deducted on the Sch C. Payments from the corporation for that debt should be included in the shareholder's income as wages.

Any expenses on the card after incorporation for the corporation should be reimbursed by the corporation.

I would encourage your client to get a corporate card. Most small business ppl resist this though since they are inherently lazy.

I almost always get an argument about this or a vacant stare as they are visualizng who knows what.

[geekgirldany]

I will double check with her on the assets. She said only a computer. But that is something to double check on.
She does travel since she is in sales but had been taking mileage and I told her how to continue doing this in the S-Corp. She said the business had a hard time for a couple of years during Sole Prop. and she paid for everything on the credit card.

No reason for this to show up on the S-Corp. Why should it be responsible for debt from their "old" sole prop. I told her at the first meeting this was something I would have to work on because it should not be there. She said she didn't think so.... she use to be an accountant

Thanks so much for talking this over with me. I really do appreciate it.

[ChEAr$]

You got a handle on it

when you said the 25000 has nothing to do with the corporation, therefore nothing
should be "transferred" as a corporate liability. It's the shareholder who still personally
owes balance on the card.

A new credit card in name of corporation, or at least in shareholder's name with corporate name on second line is another matter.

[geekgirldany]

Thanks so much. Sometimes it helps just to talk things through. Really happy this forum is here.