Discussion:S-Corp sale of new stock/valuation
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Discussion Forum Index --> Accounting Questions --> S-Corp sale of new stock/valuation
| 24 November 2009 | |
| I have an S-Corp with one shareholder who sold a 20% interest (200 shares) for $50,000. His book value at the time of the sale was a negative $6,000. (He does have debt basis)
Seems to me the buisness would/should have been "valued" and the assets adjusted upward for that increase in value. (50K is 20% of $250K). Debit - Goodwill? Credit - AAA? I am not finding much guidence on this. In either accounting literature or tax. Any suggestions? | |
| 24 November 2009 | |
| Issue seems relatively straightforward to me: S/H sold stock and has a basis in that stock. $50K less basis= gain. Books of corporation are not affected.
Alternatively, if stock was issued to a new S/H and the corp received $50K, this is a much different issue and will require more involved accounting. | |
| 24 November 2009 | |
| If the Company issued new shares the entry would be debit cash, credit equity. If the shareholder sold his shares there is no entry on the books. | |
| 25 November 2009 | |
| Sorry, I wasnt very clear. The company sold additional shares to a new shareholder for $50K which after the sale increased the number of outstanding stock and represents 20% of the total number of shares issued and outstanding. So, debit cash credit common stock and AAA. No need to write up the assets to FMV? Since AAA does not represent shareholder capital, it will then ultimately be distributed on the 80/20 split. (Yes always has been an SCorp) | |
| 25 November 2009 | |
| Typically, a small portion of the $50K would go into Common Stock (representing an additional 20% of whatever is currently there) and the remainder would be added to Additional Paid-in-capital. AAA is only a tax maintenance account and not an account on the books. A contribution of capital would not increase AAA; it would, however, establish basis for that shareholder. AAA would not be a part of the entry to record the issuance of stock. If this happened mid-year, you have an allocation to make for earnings to be attributed to shareholders at year end. | |
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