Accounting & Bookkeeping & Small Business Forum

[scott3624]

I'm new here and it is great to find a forum like this.
This was my first year of operation, I though it would be easy but I ran into a road block here. This is a 1120-C corporation. The corporation owns 100% of a (LLC) and the initial investment in the LLC was $10,000. The LLC spent that $10,000 on rent and then the LLC borrowed from the bank $50,000. The LLC spent $20,000 on contract labor. So for the year, the LLC has a loss of $30,000, it had no income. The K-1 was prepared and passed the loss to the corporation for the $30,000 loss. The $30,000 loss as an expense flow through on the corporation tax return, I'm trying to balance out the asset and liabilities. On 1120-C tax form, the $30,000 is a loss and creates a negative $30,000 on retained earning but what is the other side of the entry to balance out the asset side? I greatly appreciate any assistance.


Scott

[stasia2003]

scott3624 wrote: I'm new here and it is great to find a forum like this.
This was my first year of operation, I though it would be easy but I ran into a road block here. This is a 1120-C corporation. The corporation owns 100% of a (LLC) and the initial investment in the LLC was $10,000. The LLC spent that $10,000 on rent and then the LLC borrowed from the bank $50,000. The LLC spent $20,000 on contract labor. So for the year, the LLC has a loss of $30,000, it had no income. The K-1 was prepared and passed the loss to the corporation for the $30,000 loss. The $30,000 loss as an expense flow through on the corporation tax return, I'm trying to balance out the asset and liabilities. On 1120-C tax form, the $30,000 is a loss and creates a negative $30,000 on retained earning but what is the other side of the entry to balance out the asset side? I greatly appreciate any assistance.


Scott

To account for the initial investment:

Dr. Bank Account 10,000
Cr. Members Contribution 10,000

To account for the rent:

Dr. Rent Expense 10,000
Cr. Bank Account 10,000

To account for loan from the bank:

Dr. Bank Account 50,000
Cr. Notes Payable 50,000

Dr. Contract Labor 20,000
Cr. Bank Account 20,000

I'm not too familiar with taxes but these are the journal entries for the transactions.

[sgbdad23]

The $30,000.00 Asset should be the money that is still sitting in the bank.

[dp1903]

$30,000 was used for the expenses. Expenses are debited and Cash or Bank Account is credited for the transactions. Therefore, you have $30,000 less cash in your bank account as a result of the expenses which equal the loss.

Credit Cash or Bank for $30,000
Debit Retained Earnings for $30,000

Both accounts are Balance sheet accounts.

There are intercompany accounts which may substitute for "Bank Account", but the idea is the same. The Corp lost money as a result of its subsidiary LLC. Therefore, its intercompany account would be credited.