Welcome back! Ask questions, get answers, and join our large community of tax professionals.
cancel
Showing results for 
Search instead for 
Did you mean: 

S corp stock purchase

Highlighted
Level 2

How would I make an entry for the following:

S Corp stock purchased for $150,000(at date of purchase, stock listed as $50,000 liability)

$50,000 paid to selling stockholder from purchaser

$100,000 to be paid to selling stockholder by note

 

Labels (1)
0 Cheers
1 Solution

Accepted Solutions
Highlighted
Level 13

"Preparing 1120S data"

 

Then you have nothing to enter for this sale that is between two private parties.

"and how would I handle note payments from ABC Corp on behalf of Person B?"

 

The corporation doesn't make these payments. The corporation would have Distributions to the shareholder, and the shareholder will do with the funds whatever that shareholder needs or wants to do with the funds. And that assumes this would be after Reasonable Payroll has been paid out for that shareholder, for services performed for the business, of course.

 

This new shareholder can have pledged the ownership of the corporation for security purposes, but that isn't the taking of a loan from the corporation and the corporation didn't just buy itself out of the prior ownership.

*******************************
"Level Up" is a gaming function, not a real life function.

View solution in original post

9 Replies 9
Highlighted
Level 13

@SmokinBob 

It would help to provide perspective.

Which tax form are you working in and whose is it?

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
Highlighted
Level 2

ABC Corp, an S corp with one "owner" has a stock value of $50,000 on  7/1/2020.

"owner" sells stock for $150,000 on 7/2/2020 receiving $50,000 via check from new owner and will be paid the remaining $100,000 via a 3 year note.

I think I'd credit note payable for $100,000 and paid-in capital from new owner for $50,000, but would I debit capital stock $150,000?

 

0 Cheers
Highlighted
Level 13

Are you preparing the data for 1120S?

Are you preparing the data for the 1040?

Are you working on the Corporation's tax return?

Are you working on the Individual's tax return?

See why Perspective would be helpful? You described the event; we still have no perspective for your question.

Individuals don't typically carry Note Payable and Paid in Capital; on the other hand, the Corporation didn't sell any stock or issue new stock, if the "owner" (sole shareholder) sold his/her shares.

You described that one person bought stock from another, which would be like me selling my shares of Ford or GM to you. Ford or GM would not be involved in this transaction. If you are tracking the shareholder basis in the business' accounting records, sure, now you have two shareholders (not owners) instead of one. But the Corporation has not benefited from a sale for $150,000 of anything.

"has a stock value of $50,000"

""owner" sells stock for $150,000"

And now it also matters if this is Half the shares? 10% of the shares? Because it appears that your "owner" has a personal gain of some sort, although we don't know the original equity or basis, of course. But that seems like a nice price that might result in gain.

 

*******************************
"Level Up" is a gaming function, not a real life function.
Highlighted
Level 2

Preparing 1120S data

Working on corporation tax return

Person A sells all of the 100 shares of ABC Corp to Person B for $150,000

Person B pays Person A $50,000

The remaining $100,000 is owed to Person A by a 3-year note secured by stock certificate and a security agreement with debtors, Person B and  ABC Corp

I guess my questions are: would I list the note on the corporation balance sheet or is it just Person B's debt and how would I handle note payments from ABC Corp on behalf of Person B?

 

 

 

0 Cheers
Highlighted
Level 13

"Preparing 1120S data"

 

Then you have nothing to enter for this sale that is between two private parties.

"and how would I handle note payments from ABC Corp on behalf of Person B?"

 

The corporation doesn't make these payments. The corporation would have Distributions to the shareholder, and the shareholder will do with the funds whatever that shareholder needs or wants to do with the funds. And that assumes this would be after Reasonable Payroll has been paid out for that shareholder, for services performed for the business, of course.

 

This new shareholder can have pledged the ownership of the corporation for security purposes, but that isn't the taking of a loan from the corporation and the corporation didn't just buy itself out of the prior ownership.

*******************************
"Level Up" is a gaming function, not a real life function.

View solution in original post

Highlighted
Level 2

Sounds good. Thanks. If it were a c corp, would any distributions(not payroll) be considered dividends?

0 Cheers
Highlighted
Level 15

Yes


ex-AllStar
Highlighted
Level 15

If an individual sells his stock to another individual, none of that should appear on the corporation's records.  No entries to be made.

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
Highlighted
Level 13

Notice I never even asked about this part: "stock listed as $50,000 liability"

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers