S-Corp Dissolution

[ChiHoang]

Client sold a grocery business operated under S-Corp. on 11/30/22 for $10,000.

Their balance sheet on the last day: cash 54,414, inventory 19,414, loans from shareholders 13,737, capital stock 40,006, retained earnings 19,736.

Please help me how to process transactions in ProSeries professional to dissolve the S-corp and realize loss of sale.

Thanks 

[dascpa]

Look at the contract of sale for the allocation of price breakdown.  File Form 8594.  Take some continuing ed classes on the subject.  If you understand the concepts, that makes the tax return input so much easier.

[dkh]

Let's start with the $10,000.   What is the breakdown -  inventory, assets equipment  (which you did not mention being on the Balance Sheet ), Goodwill ?    

edited

[IRonMaN]

Pesonally I've been looking for a sweetheart deal like that.  Buy 54,414 of cash for only $10,000 and have them throw some inventory in for good measure.  Heck of a deal.  Now if the inventory was all Dove chocolate this would be a grand slam😀

[ChiHoang]

$10,000 is for inventory only and does not include cash on the bank account. The buyer bought the store for the inventory, not the corporation.

Do I need to zero out the balance sheet on the S-corp final return ? What transactions do I need to do to zero out cash, inventory, loan to shareholders, Capital and retained earnings accounts ?

Do i process form 4797 for the loss of sale ?

Thanks for your help 

[dascpa]

I am going to repeat myself.  This is a ProSeries tax preparer community board. It is not set up to teach you accounting journal entries and tax law.  Maybe you should not take on this client if you're not familiar enough to do a quality job.

[IRonMaN]

Was the corporation actually completely closed at year end or did they still have cash on hand?

[ChiHoang]

I know all the journal entries, but not sure how to make transactions in ProSeries. It's a big help if you could walk me thru.

This S-Corp was dissolved on 11/30/2022 and bank account was closed out.

Again thanks for your help.

[ChiHoang]

Sorry I just checked and bank account is still open and having cash on hand.

Corp. was dissolved on 11/30/22

[IRonMaN]

The sale of inventory would be reported on page 1 of the return.  If you know how to make all of the journal entries, then you should have a "zero" balance sheet at the end of the year.

[IRonMaN]

But if the corp still had cash, the balance sheet isn't zero at year end.

[dkh]

Make all your journal entries in your accounting software - print the Balance Sheet and Profit/Loss statement - enter those numbers into Proseries.   Have you used the 1120S program before? 

[ChiHoang]

I used 1120S before but never did dissolution.  Where to make journal entries in ProSeries to close out balance sheet accounts ? It's not like QuickBooks where you can make journal entries. Sorry not knowing that's why I asked.

Thanks

[sjrcpa]

You don't make journal entries in ProSeries. You make them in your accounting software. See dkh's post at 11:38 AM today.

[ChiHoang]

I want to zero the inventory balance, but it will affect my cost of goods sold. How do I make it sale of inventory instead for the calculation of loss on sale of business ?

Thanks

[rcooley25]

Throw in a case of fireball for boot.

[sjrcpa]

You said they sold the inventory. Therefore, Cost of Goods Sold is appropriate.

[dkh]

Why wouldn't  adjusting inventory affect cost of goods sold ??

Again  - do your journal entries in your accounting software then use the finished Balance Sheet & P&L to enter the numbers to the tax return.

[ChiHoang]

It should be debit to loss on sale of inventory instead debit to cost of goods sold. isn't it ?

How do i record that loss on sale of inventory in ProSeries ?

Thanks

[IRonMaN]

Enter the selling price as sales, show zero inventory at year end and you are done reporting the sales transaction.

[dkh]

Sale $10,000 less inventory(COGS) $19414 = $(9414)     isn't that a loss ?

[ChiHoang]

Agree. But how do i record that transaction in ProSeries to realize the loss on sale of inventory ?

Thanks

[dascpa]

You really should not be handling this client.

But if you start with (example) $20,000 beginning of year inventory, add $30,000 of purchases you have $50,000 goods available for sale.  At the end of the year you have -0- in inventory you have a $50,000 costs of goods sold.  If the selling price of the inventory was $10,000 your gross profit is $10,000 - $50,000 = <$40,000>.  you've reported the loss.

Alternatively, you can leave sales and costs of sales out of the entire equation for the sale of the business and only use it for normal day-to-day operations.  On Form 4797 under ordinary gains and losses you can report the $10,000 sale of inventory and $50,000 cost of inventory for a $40,000 loss.  

Both methods yield you the same result.  But since you have to report on Form 8594 the breakdown, the 4797 method will match the 8594.

[dkh]

@dascpa said You really should not be handling this client.

I second that.  

[IRonMaN]

On Wednesday I wouldn't have quickly jumped on that bandwagon.  On Friday, I'm sitting in the front seat of the wagon.

[ChiHoang]

Thank you for your response. You don't need to go thru the accounting part of my question. I just need  how to handle the capital loss on sale of the business in ProSeries. Do I need to show it on sch K-1 and how ? Or I just show the loss on form 4797 on the personal tax returns ? If I zero inventory, cost of goods sold will increase and I don't think it's appropriate to show the sale of business thru regular operating loss as you described. 

Thanks

[IRonMaN]

You were given the answer a couple of times.  If you don't like the answer provided I think you are on your own.

[qbteachmt]

"It should be debit to loss on sale of inventory instead debit to cost of goods sold. isn't it ?"

The point of the sale price identifying what was purchased is how you determine which things carry gain, loss, are ordinary income, etc. That's why both parties are supposed to agree to the details.

This sale of inventory is no different than if they sold all their stuff at a deep discount, because it is about to spoil. You know the business data reflects the "sold at a loss to COGS" and that's all you are doing. There is no Special Loss for this.

You should find a mentor to work with you. It's hard to tell if you are overlooking something else or treating something else incorrectly for your client.

[ChiHoang]

Thank you for your time.

[ChiHoang]

I thought it's a simple question on how to process a sale transaction of S-corp (mainly inventory) in ProSeries and everyone is focusing on the accounting side of it. I think it should not increase cost of goods sold (when I zero the inventory balance) which impacts ordinary profit/loss. Rather it should affect capital gain/loss for this sale.  But I don't know how to make it happen in ProSeries.

If you all don't have answer, I'll figure out myself. Thanks for all your time.   

[qbteachmt]

"I think it should not increase cost of goods sold (when I zero the inventory balance) which impacts ordinary profit/loss."

Yet, you told us the sale was only for the inventory. That's no different than regular sales. Think of it differently: they put everything in the store on sale at a deep discount and now are closing their business. No difference.

You've been told how to do this many times. Re-read your own topic and all replies.

You have to match the buyer details to the seller details.

You can't make any adjusting entries in Tax Preparation programs. That's not their function.