Discussion:SOle Proprietor converts to S-Corp
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> SOle Proprietor converts to S-Corp
| 16 October 2006 | |
| OKay.. so this is probably Accounting 101, but I am finally getting my client's intitial S-Corp return prepared for 2005. The Date for S-corp status is 1/1/2005. He has been in business for years and years. My Question is on the beginning balance sheet numbers.
Since he converted to an S-corp all his assets and liabilities get valued and he is set up with the equity. SO are my beginning numbers going to be all Zeros or is it going to be his assets + an amount in owner's equity equal to his assets? Thanks a billion | |
| October 16, 2006 | |
| Since he converted from a Sch. C, your beginning should be his ending Sch. C balance sheet that you created to initialize the corp. And a 351 statement is supposed to be attached, tho' I've never sent one in... | |
| 16 October 2006 | |
| I was always taught that if you have, say, $50K fixed assets, $40K accum depr on those assets and therefore $10K equity as your proprietorship balance sheet (nothing else on there), then you put those same $50K fixed assets with the $40K accum depr and then credit your common stock account on the corp balance sheet to begin. You keep depreciating the assets as you would have under the proprietorship. No step up in basis. Anyone see it differently? | |
| October 16, 2006 | |
| That is correct, K. Still waiting on some part of the billion from Sbellen.... | |
| 16 October 2006 | |
| Thanks K and JR, all good things to those who wait! Billion in the mail;) | |
| 16 October 2006 | |
| Okay so now I am trying to balance this guy.... Says I am out of balance by basically the amount of Income added to retained earnings... i am guessing that income goes somewhere in the asset column... presumable cash or inventories or whatnot... so that brings up the following question:
What about the income he earned and was taxed as a Sch C last year.. shouldn't that be a part of his Beginning Retained Earnings or Common Stock for 2005? Or am I being silly? Thanks a Trillion! | |
| October 16, 2006 | |
| Not silly. Yes, his earnings as Sch. C are part of his Equity section now as a corp. Part of the Stock or Add'l Paid in. No beginning R/E, btw...that's only for Corp earnings, so he starts with zero. Waiting at mailbox. | |
| 16 October 2006 | |
| Let me try and get in on the trillion, it goes to Retained Earnings - Prior Year.
Will | |
| October 16, 2006 | |
| Get your hands off my mail, pal! And yeah, sorry, but that ain't right...ok, you have to send money now, too. Tho' SB never even said it was money. Might be bottle caps or used Q tips. | |
| 16 October 2006 | |
| lol, how about I send you this box of a trillion wrong answers im sitting on. :) | |
| 16 October 2006 | |
| Thanks again... so let me make sure I understand... In 2004 he was taxed on 20,000 and his transferred assets are say 100,000 so his Stock or Paid In should equal 120,000, right... so right now I have Assets = 100k and L&E = 120k... but 20k in earnings was spent somewhere so I just have to find it right... Cash or Inventories, etc...
Oh and another thing... If my guy Sells 20k in goods and of that 20k, $800 is Sales Tax, his Sales are still 20k and he gets the $800 as a deduction. SO is the Sales Tax a deduction as COGS or is it an Ordinary Deduction? | |
| 16 October 2006 | |
| Oh and I am in a heated discussion right now with Pyong Yang about getting that Trillion for yas | |
| October 16, 2006 | |
| Your balance sheet has/had to balance first. If he's got assets of 100k, then l&e are also 100k, which includes the current profit. If that profit was the 12/31/2004, then that doesn't enter into it...in which case his stock will be only the 100k. Now, quick-topic changer, as to the sales tax, there's two ways to book it, just pick one. For most clients, we'll book only the net sales and the sales tax as a current liability of accrued sales tax. Sometimes, we'll book the gross sales as sales, then deduct sales tax expense as it's paid...either one works, but the second one will overstate income temporarily until it's paid. And yes, I'd usually include it as a COGS item in that case since it's directly related to the sales. | |
| 16 October 2006 | |
| Crap and crap some more - well crap...
Seems like the only thing that will make this balance is either a reduction in Net Income to RE or an increase in Cash. I say this b/c it seems like there are various truths self evident: 1) Common Stock does change for the sake of making the BS balance 2) Fixed Assets don't appear or dissappear - see 1) above 3) Any change in Ending Inventory will have an equal effect on the BS 4) Cash is cash is cash.. he can't have more or less than he has right?? So crappity-crap-crap | |
