Finance

Have finance questions? Ask a financial expert online.

Ask an Expert,
Get an Answer ASAP!

HOW CAN MIS-PLACED TRANSACTIONS BE CORRECTED? Looking to…

Customer Question
HOW CAN MIS-PLACED TRANSACTIONS...

HOW CAN MIS-PLACED TRANSACTIONS BE CORRECTED?
Looking to help a CEO/Shareholder of three separate companies (different EINS for a C-Corp holdings/servicing company, an S-Corp manufacturing company and a third C-Corp IT web & helpdesk support). The CEO withdrew from the IT C-Corp some equity, with instructions to the CFO to deposit the monies to the C-Corp (holdings company to purchase assets (for lease) and purchase products and materials (for sales). However, the CFO erroneously deposited the funds to the S-Corp manufacturing company against notes payable to the C-Corp (IT company), and used the funds to purchase production equipment and/or pay expenses in the S-Corp (manufacturing company). A year later, they're still trying to figure out how to correct this, having already filed 2016 taxes.Received suggestions this would impact "income" of the S-Corp (manufacturing company) to move its assets/expenses to the C-Corp (holdings company), and require 2016 taxes be amended. Or if specific assets/expenses can be identified, the N/P can be moved to equity, and then an equity transfer can be made of the "assets and expenses" between the C-Corp (holdings company) and S-Corp (manufacturing company) to correct the original mishandling. Need help to brainstorm, and identify possible solutions and affect on taxes! Can you help? Joanne Salas

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

What else would help them fully understand? Trying to clarify, the CFO should have deposited C-Corp (IT Svs Co) withdrawal intended for the C-Corp equity (holdings company) to buy equipment to rent and purchase goods to sell to manufacturing companies. However, funds were erroneously deposited directly to manufacturing company to purchase small assets and manufacturing materials, and pay some expenses. Can this be corrected between his companies?

Submitted: 3 months ago.Category: Finance
Show More
Show Less
Ask Your Own Finance Question
Answered in 4 days by:
3/23/2018
Financial Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 3 months ago
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 1,050
Experience: Former IRS Revenue Agent
Verified

I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

Ask Your Own Finance Question
Financial Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 3 months ago

Dear Customer,

What could have been affected is the depreciation expenses.

It possibly best to simply sell the assets with its liabilities to the company where it belongs. This is inter-company sales in 2018. Nothing for the prior year moves.

The same method can be used for all small purchases done incorrectly.

The larger items can use sales and the smaller items can use inter company transfers.

The note description in the accounting record, however, simply say that to correct prior mistakes. There should be not much tax differences. As long as the three companies' income and expenses are not much affected, the IRS should not scrutinize the transactions and effects. The IRS does not want us to manipulate income and expenses among related entities.

Also, the income tax was done correctly reflecting the reality even if it was caused by mistakes.

Please feel free to follow up.

Regards,

Fiona

Ask Your Own Finance Question
Customer reply replied 2 months ago
Hello Dr. Chen, I didn't realize you had responded days later! Thank you! I just figured nothing could be readily corrected based on brief conversations with other CPAs. I believe the charge of this service permits additional follow on this specific matter? May I please clarify my understanding, and be sure of your reference to INTERCOMPANY SALES (dealing with three separate companies, 2 C-Corp, 1 S-Corp where the one shareholder has most equity in each of these companies, but there are other shareholders, too).While I am MOST OPTIMISTIC that we can CORRECT prior year mistakes in current 2018 without prior year tax adjustments (to the IRS, it is simply recognizing and adjusting for the human errors that were made that we're trying to achieve), I need specific guide on the ACTUAL ACCOUNTING ENTRIES that would need to be made for these situations:How would we adjust for of both larger assets (INTERCOMPANY SALES) and smaller assets (INTERCOMPANY TRANSFERS), and associated liabilities? (My long research brought me to Clearings and/or Wash accounts to "adjust" between INTERCOMPANIES (all three companies have different EINs, is this still Intercompany?)What is considered "insignificant" for adjusting the INCOME and EXPENSES paid? The initial equity withdrawn from IT Corp that was ERRONEOUSLY added to MFG S-CORP that should have been added to HOLDINGS C-CORP was around $350k.
What would the accounting adjustments look like to correct back EXPENSES in current year?I am holding my breath on your reply Dr. Chen! The CEO just wants us to CLEAN UP company files as was truly intended!
Respectfully, ***** *****
Financial Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 2 months ago

Dear Customer,

It is interesting. It is not only the assets were purchased in the different company's account, for 350K, the other company simply charge the depreciation? Hopefully, they did not also take bonus depreciation or section 179 depreciation.

If you are interested in working out accounting entries, would you please state all the current accounting entries done by each company and the money transfers so far, from 2016 or earlier to 2018?

Regards,

Fiona

Ask Your Own Finance Question
Financial Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 2 months ago

p.s. Please also provide shareholders and type of businesses for the three company. You may want to say shareholder A, B, C and percentage ownership. Are they all in the same location so that the 350K assets can be received by another company but locate in the same location to be used by the other company? Who actually received the equipment and used the equipment?

Ask Your Own Finance Question
Customer reply replied 2 months ago
To clarify, nothing has been done, other than the erroneous handling as initially stated. The ONE primary shareholder in all three companies (50% in MFG S-Corp, 33% in Holdings C-Corp and unsure of the exact % in the IT C-Corp) made an equity withdrawal from his IT C-Corp INTENDING to finance the new Holdings C-Corp who would service the MFG S-Corp, but the CFO put the monies directly to the S-Corp, and primarily, paid expenses and purchased assets. Note that depreciation was NOT taken or expedited! The HOLDINGS company was designed to service the MFG company needs by renting equipment and purchasing/reselling productions materials, thereby letting the MFG company ONLY do that and all its procurement and services needs would be "outsourced" to the HOLDINGS company.Regretfully, I'm not as optimistic in your initial reply as we continue to clarifythe issue at hand. I would have to work with the accountant to identify the specific "assets" and "expenses," but asked you to share SAMPLE ACCOUNTING ENTRIES on how we would "sell" the assets/liabilities between companies, and in the case of expenses, what could be done there to move those expenses and liabilities to the company they belong?My accounting classes failed to prepare us for fixing such significant errors in booking to the wrong companies!
Financial Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 2 months ago

Dear Customer,

It is good that depreciation is not taken yet. That is the key.

Well, how it is affecting 2016 or 2017 if no one has taken a depreciation? There is no income/expenses. That is good. The correction will be on the balance sheet among three companies. That is where the inter-company sales, transfers, etc. can happen. We are trying to correct the balance sheet items.

Do you have the original journal entries for your reference?

Regards,

Fiona

Ask Your Own Finance Question
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a financial professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Dr. Fiona Chen Your Own Question
Dr. Fiona Chen
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 1,050
1,050 Satisfied Customers
Experience: Former IRS Revenue Agent

Dr. Fiona Chen is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Rakhi Vasavada

Rakhi Vasavada

Financial and Legal Consultant

2,609 satisfied customers

Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years

Megan C

Megan C

Certified Public Accountant (CPA)

2,222 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

Manal Elkhoshkhany

Manal Elkhoshkhany

Tutor

1,933 satisfied customers

More than 5000 online tutoring sessions.

JKCPA

JKCPA

CPA

844 satisfied customers

Bachelors degree and CPA with Accounting experience.

Eric

Eric

Financial Manager

559 satisfied customers

Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.

R. Klein, EA

R. Klein, EA

Accountant

480 satisfied customers

TurboTax Expert. QuickBooks Certified Pro Advisor

Dimitry K., Esq.

Dimitry K., Esq.

Attorney

332 satisfied customers

NASD Licensed Rep, 1997-2001, Business Attorney

< Previous | Next >

Related Finance Questions
I have a depreciation question on an assett question. If i
i have a depreciation question on an assett question … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a question with regards to depreciation on a
I have a question with regards ***** ***** on a commercial rental. If a leasehold improvement was made for new lighting, would this still be depreciated for 39 years even though the lease is only for … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,377 satisfied customers
Can I take a loss on a truck depreciation of 60,000 for an
Can I take a loss on a truck depreciation of 60,000 for an s-corp on a K1? Or, am I only able to deduct the up to the actual income?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,377 satisfied customers
Im trying to figure out the price depreciation schedule (month
I'm trying to figure out the price depreciation schedule (month by month) over two years, for products in the following categories: o Furniture (e.g. Couch) o Home electronics (e.g. Flat Screen) o Hom… read more
Michael Hannigan
Michael Hannigan
Bachelor\u0027s Program
239 satisfied customers
I have a question about rental depreciation of inherited
I have a question about rental depreciation of inherited property that was transferred midyear and how to treat the income prior to deed transfer. The property is foreign property. My wife inherited a… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Is it a requirement to calculate depreciation expense on
is it a requirement to calculate depreciation expense on business use of home percentage? it seems rather complicated.… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,377 satisfied customers
I have a question related to depreciating a piece of
Hello, I have a question related to depreciating a piece of equipment my company buys? … read more
Carter McBride
Carter McBride
LLM
1,150 satisfied customers
I need help with calculating depreciation. I closed on a
I closed on a residential rental property on August 15, 2016. The land value was 501,660 and the improvements were 489,340. How much depreciation should I have taken on my taxes for 2016 and how much for 2017? … read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Do Section assets that I'm taking Section 179 depreciation
Do Section assets that I'm taking Section 179 depreciation on along with the associated depreciation go on Schedule L or should it only be on the K-1? … read more
Carter McBride
Carter McBride
LLM
1,150 satisfied customers
When can I record an asset? Start depreciation? I'm in a
When can I record an asset? Start depreciation? I'm in a partnership, started March 2017. We were gifted a house last year (around November/December) and immediately started paying vendors to get the … read more
TaxRobin
TaxRobin
Vocational, Technical or Trade School
1 satisfied customers
For our corporate tax return, can we fully depreciate the
Hello, For our corporate tax return, can we fully depreciate the value of new truck we purchased in 2017? We are a corporation and the truck is for pick up and deliveries of inventory and other work r… read more
Carter McBride
Carter McBride
LLM
1,150 satisfied customers
The new tax law has changed the depreciation length or
The new tax law has changed the depreciation length or residential rental buildings will we have change the depreciation schedule for existing properties?… read more
TaxRobin
TaxRobin
Vocational, Technical or Trade School
1 satisfied customers
Have a sub s corp rental properties fully depreciated wish
Have a sub s corp rental properties fully depreciated wish to do a joint venture not a sale or transfer of property.. How can this be done without triggering capital gains? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have some questions about Residential Rental Depreciation.
I have some questions about Residential Rental Depreciation. I rented out a house in 1986 for a few years using the Acrs method of depreciation. Took the rental out of service after a few years. Now, … read more
TaxRobin
TaxRobin
Vocational, Technical or Trade School
1 satisfied customers
Lane, I'm depreciating a vehicle for "its first time" and
Hey Lane,I'm depreciating a vehicle for "its first time" and taking the Special Depreciation Bonus. My questions is during the same tax year of the S.D.B. can I also deduct the "Current Depreciation"?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Can I take depreciation on my investment property without
Can I take depreciation on my investment property without selling it … read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,270 satisfied customers
4 years into 5 year depreciation, contractor who was using
4 years into 5 year depreciation, contractor who was using computer equipment my C corp owned went out of business and lost the equipment to his landlord. I'm guessing I can write off the balance, but… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Double declining balance depreciation. Shouldn't the asset
Double declining balance depreciation. Shouldn't the asset be fully depreciated after the useful live if there is no salvage value? If this calculator is wrong, please provide a schedule that is corre… read more
ABC Accounting Group
ABC Accounting Group
Bachelor\u0027s Degree
842 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x