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The main question is WHO purchased shares?
If shares were purchased by the remaining shareholder - that purchase transaction would not be on S-corporation books.
But if S-corporation purchased its own shares - these become Treasury stock in an S corporation.
That purchase is NOT coming from the shareholder's capital account.
The corporation is an s corp and the owner of the s corp with the 60 but the 40 from the other owner under the s corp.
The question is WHO purchased shares from the departed shareholder?
The remaining shareholder? or the S-corporation itself?
the corporation itself the owner did not give the other shareholder money from the personal account.
When the S Corporation purchases a shareholder's stock, this transaction does not affect the other shareholders' basis .
Purchased shares become an asset of S-corporation and should be lusted as asset on the balance sheet.
For the departed shareholder - at the time of departure the capital account should be zeroed and closed.
I have to create an investment 170K which i need to create the liability for the promissory note of 170K. When I write the check for 35K for the next five years to pay the investment , i am going to reduce the liability by 35k , what do i do with the investment account dont i need to reduce it as well.
the other accouuntant never logged this transaction in ???
You are correct.
That would be just an ordinary installment sale.Be sure that a part of the payment is allocated to interest income - and that will be deductible for the corporation and taxable for the payee.
Otherwise principal payments are capital investments and should not be deducted as business expenses.
So - when S-corporation will use earnings for these payments - these earnings will be taxable for the remaining shareholder - while may not be distributed because of that installment obligation.
the 35k it has to be regestered as a loss i am missing a leg in one of the entries and it cannot be an equity account.
Just to refresh our discussion...The question is WHO purchased shares from the departed shareholder? Customer - the corporation itself the owner did not give the other shareholder money from the personal account..
So - the corporation just purchased shares. If happens to be shares of the same corporation.
I do NOT see any loss realized in that transaction.If the corporation later SELL shares for less than it purchased them - then we will have a loss.
So far - that is a capital invested and NO loss.