1120S SHAREHOLDER

[TAXMAN]

Maybe a dumb question here. During the year Shareholder #2(only 2 shareholders in corp) bought out shareholder #1 for the value of the stock on the balance sheet. Since this is now a 1 shareholder 1120s does the value on the balance sheet change? I did find out that shareholder #2 also paid #1 his share of the (as they said) retained earnings, however I think they were referring to the accumulated adjustments account or his share of the profits this year, still not sure on this. Corp has always been a S corp. Anyone with thoughts on this appreciated. Thanks

[OldJack]

>>Does the value of the balance sheet change? <<

You got to be kidding! If the money came out of the S-corp (and I am guessing it did) the balance sheet had to change. If it didn't come out of the S-corp, then only the stock record book needs to cancel shareholder 1's stock certificates and reissue stock to the buyer.

The accumulated adjustment account or retained earnings do not belong to any 1 shareholder. This is not a partnership with separate accounts.

If you are the accountant for the S-corp you have a lot of work that must be done! You should get help form someone that knows S-corp taxation.

You need to give us more facts. Did the money come out of the S-corp or from Shareholder #2?

[kcjenkins]

It's OK to ask "dumb questions", that is a sign of someone who wants to learn and expand his base of knowledge. No one here will be critical of you for asking.. And this board has a great number of knowledgeable professionals who are happy to share their experience with those smart enough to ask.