Issues with SCorp schedule L balance sheet

[johnmallen78]

I have a new business that is filing as S corp for the first time. It had no income or expenses in 2020 however the business is a partner in another company and received a K1 for a loss. That is listed in line 24 as a negative retained earnings and is making my balance sheet out of balance by that amount. I can't seem to find any information on how to zero that out. Any suggestions?

[Anonymous_]

Do you need to prepare the balance sheet in TurboTax? It is probably not required given your scenario.

[johnmallen78]

Unfortunately we live in Oklahoma and they require a balance sheet no matter what, so that forces me to do one.

[Rick19744]

You need to have an investment account set up in the assets section; probably best on line 9.

Most likely you have not adjusted this account for the K-1 loss.

[Anonymous_]

Probably a corresponding adjustment to shareholders' equity is needed in that event. 

EDIT: As @Rick19744 stated, you need to set up your accounts properly.

[johnmallen78]

So if I adjust an investment account or investor equity it would need to be a positive number that equals the negative loss from the K1? That seems to be the only thing that will zero out the balance sheet but I'm confused since the K1 received is for a loss how would that create a positive investment or equity for the company? This is my first time doing an SCorp so I apologize for the confusion.

[Rick19744]

Attempting to correct a balance sheet in a forum such as this is difficult as we can't see your return and we don't know what has already been done.

The balance sheet in TT Business is generally manually input.  This is not something that the software computes.

I think what you need to do is manually prepare a balance sheet that you believe is correct.  When doing so, you need to remember that the S corp made in investment in another business.  This investment needs to be recorded on your S corp balance sheet.  By way of example, if you contributed $10,000, then the original entry would have been to debit the investment account by the $10,000 (line 9 on the balance sheet) and then credit the cash account by this same amount.  Everything balances.

Going forward, each year you receive a K-1, you will need to adjust this investment account by the applicable K-1 line items.  By way of example, let's say your K-1 net amount is income, then you will debit the investment account and credit equity.  If you have a loss, then you will credit the investment account and debit equity.