Discussion:Booking legal fees pursuant to a stock redemption
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Discussion Forum Index --> Accounting Questions --> Booking legal fees pursuant to a stock redemption
| 9 March 2008 | |
| I am having a serious brain block here. What I am wondering is how I book legal fees that are part of a stock redemption agreement from an s corp. The corporation purchased stock from one of the 50% shareholders. I booked the equity part as a debit to treasury stock and a credit to note payable, however there were also legal fees and after doing research I am finding that those legal fees are not deductable and I also found that they cannot be amortized so I am wondering if I just debit an other asset account and call it legal or organization fees or I don't know what and then the credit would be the cash which was paid to reimburse the former shareholder for the legal expense. Can anyone shed some light on this for me.
Thank you! | |
RoyDaleOne (talk|edits) said: | 20 March 2008 |
| The first issue rule in accounting for other assets is there must be a benefit to be incurred sometime in the future from the asset. I see no future benefit to be obtained in this situation, therefore, I think other assets is wrong. The next issue is the "cost or expense" so closely associated with an activity or item such that the accounting treatment should follow the associated activity or item. This could be the situation relative to this facts. However, costs or expenses should be charged to the "period" to which they are related. In addition, I am not positive why the legal fees were reimbursed to the former shareholder, maybe compensation to the former shareholder, part of the stock redemption agreement, or paid as part of a legal proceedings, or to avoid a law suit.
The GAAP treatment I would suggest is to expense them. As for as tax treatment, maybe a non-deductible expense, of a part of the Treasure Stock account. Could be a book tax difference, expensed for book part, part of Treasury Stock for tax. | |
| 20 March 2008 | |
| With out any more information, the legal fees should be capitalized, however depending on the nature and cause of triggering the stock redemption agreement, it could be expensed, more details needed.
Okay I read again, you are trying to report the sale on the corp's books that 'sold' the shares? Shhot now ; I am having a serious brain block here
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