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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7119
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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My name is ***** ***** and I am trying to make a journal

Customer Question

My name is ***** ***** and I am trying to make a journal entry for an s-corporation. The only things left on the balance sheet are $75,000.00 loan from shareholders and $10,000 capital stock
JA: Thanks. Can you give me any more details about your issue?
Customer: There is no money left in the s-corporation
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Submitted: 1 year ago.
Category: Tax
Expert:  Stephen G. replied 1 year ago.

What's in your Retained Earnings or AAA account?

Was the current year income or loss closed to the Retained Earnings or AAA account?

Customer: replied 1 year ago.
My balance sheet at 12/31/14:Assets:
N/R $103,662Liabilities:
Loans from shareholder $183,526
Capital Stock $10,000
Retained Earnings ($89,864)2015 Activity:
N/R has been paid in full
Interest income on N/R $1,804So my journal entry to record that is:
N/R $103,662 Credit
Interest Income $1,804 Credit
Loan from shareholder $105,466 DebitThat will leave me with:
Loan from shareholder $78,060
Capital Stock $10000
Retained Earnings ($89,864)
Current Year Earnings $1,804My main concern is how to treat the loan from shareholder balance? Will that be income for the s-corporation?
Expert:  Stephen G. replied 1 year ago.

You need to define the debits & credits.

If the loan from shareholder is a debit balance it is a Loan to the Shareholder.

So in the ending balance if the 78,060 is a credit balance, then the shareholder has a 78,060 receivable from the S-Corp which will offset the forgiveness income if the loan is cancelled as his 78,060 receivable will turn into an expense for him.

Is that what you are asking?

Customer: replied 1 year ago.
Loan from shareholder $78,060 (credit balance)
Capital Stock $10000 (credit balance)
Retained Earnings ($89,864) (debit balance)
Current Year Earnings $1,804 (credit balance)
Expert:  Stephen G. replied 1 year ago.

OK, so if the loan is cancelled, then the corp has income which is passed through to the shareholder & will offset his receivable (now an expense) from the corp as noted above.

Then everything closes out no problem.

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