Discussion:Sale of company .. how to book properly (few twists)

Had 400k in assets, all of which were left behind (leasehold improvements, comp equipment, furniture, website design). Has 1,000,000 in escrow with Lincoln Financial, all of which was forfeited.

Company has an active loan outstanding for 315,000, which was assumed by client .... and has bank activity through 11/2008 in the company bank account.

Hmmmm .... I'm a bit overwhelmed here.

Loan assumed by stockholder: Debit Loan Payable Credit APIC Shareholder basis increased by loan assumption

$400K ordinary loss on abandoned assets (may have combination of depreciation up to date of abandonment and then remaining book basis written of as loss). Careful that stuff not really abandoned and found its way home to the owner or his storage shed. Any items he kept require you to book sale at a fair used value and treat sales price as a liquidating payment to him reducing his equity. Used value for sale price cannot be less than book value. Can't recognize a loss on sale to a related party.

$1,000,000 escrowed funds; why the forfeit? Purpose for the escrowed money? Was this an investment made by a C Corp? C Corps cannot deduct capital losses except to extent of same C Corp capital gains. Shareholders capital gains don't count. Was this an investment by an S Corp? Would be recorded as loss on S Corp books and is a pass through item as such on K-1 to shareholder. Was this an investment by the individual? Again it is a capital loss to the individual. S Corp or individual capital losses have lovely tax treatment to limit amount deductible if they exceed capital gains.

$500K sale of intangibles is gain on assets to record on company books. No cost basis in the intangibles assumed by me but you may have something on books you were amortizing.

Any loans the shareholder made to the company closed to APIC. Any loans from a C Corp to the shareholder that won't be paid back = shareholder income and company loss to book. Loans from S Corp to shareholder can be booked as a distribution and not flow to Corp P&L

When your books are complete to this point, there is your final equity amount. From there you have to calculate your shareholders basis (could have reductions from deducting losses or outside basis from purchase in the first place.) If positive basis you have a capital loss. If negative basis you have a capital gain.