"Distributions in Excess of Retained earnings" throwing off balance sheet?
I want to make sure I'm not doing this wrong. For an s-corp, previous year had negative retained earnings, current year has positive retained earnings but ending balance retained earnings is still negative, and shareholders took $4,000 in distributions (which was NOT in excess of their BASIS, but was in excess of retained earnings). However it's throwing off the TurboTax balance sheet. Example Sch. M-2/Retained earnings memo smart worksheet:
A. dividends... 0
B. ending balance earnings & profits... 0
C. Beginning balance retained earnings Sch L... -75,000
D. Plus net income (loss)... 40,000
E. Less dividends & distributions... 0
F. Ending balance in retained earnings... -35,000
G. Distributions in excess of retained earnings... 4,000
So now the problem is that the balance sheet is thrown off by $4,000 because TurboTax is calculating retained earnings from Sch M-2 and counting $0 in distributions taken (E). So retained earnings are over by $4000 and I can't get TurboTax to agree to the actual retained earnings, it just keeps saying it's out of balance. Should I leave TurboTax's calculated RE that's over by $4,000 and put -$4,000 in adjustments to shareholder equity? Or the link below makes it sound like I should just leave the wrong number in retained earnings but subtract $4,000 from capital stock at the end of the year to balance it? Am I misunderstanding these instructions from TurboTax? I guess it seems odd. How will this affect the next year?
