Hi all-
I have a fairly simple tax return for an S corp (1120-S), but I cannot figure out the balance sheet. Here are the basics. This (2021) is the first year in existence for the org.
Income
-159k ordinary business income
-3.5k short term cap gain
-162.5 total income.
No shareholder distributions
Assets
-34k end of year cash
-500k other investments (value of partnership buy in)
-534 total assets
Liabilities and Shareholder Equity
-350k Loan (paid down from 500k)
-$25 capital stock
-162.5K Retained earnings
-512,525 Total Liabilities and Shareholder Equity
Short 21,475
Two other relevant factors:
1) Paid down the loan balance by 150k this year. Should that be treated as retained earnings?
2) The capital gain (3.5k) on sale of shares also returned capital (~22k) which was then paid toward the loan balance.
My question
1) Should retained earnings reflect what was paid for the loan? In other words, should I add the 22k of returned capital from the sale of shares that was paid towards the loan to my retained earnings? That is the missing piece in the balance sheet. Is that additional paid in capital? Not sure where that should go.
2) Also, should retained earnings reflect what was paid towards the loan that is no longer in cash? It went towards paying down the loan.
