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njr132
November 28, 2021

Purchase of existing business with real estate

  • November 28, 2021
  • 1 reply
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Hello - We purchased a school with real estate a couple of months back.  For liability protection, the real estate is under an LLC and the Operating business is under an S Corp.  Our total investment was 20%, including down payment and closing costs and the rest was financed.  My questions are as follows:

1. I am assuming I set this up as two entities in QB - the LLC and the S corp.  How much of our down payment should I put as owners equity for each?

2.  We received cash from the Sellers in this transaction as fees that was collected in advance.  Is that equity or a short term liability as a pre-paid revenue?

Thanks in advance for any help

    1 reply

    Rustler
    Rustler
    December 1, 2021

    In an s-corp there is no equity accounts as there is in a sole proprietor or a partnership. The shareholder value accounts are of a type equity, but can not be treated the same way you would in a sole proprietorship or partnership.

     

    If the LLC is a partnership or sole proprietor, then you can show the value of the deposit as owner/partner equity investment and deposited to a cash type bank account. Then spend the deposit in the cash type bank account to pay the down payment.

    All funds spent should be posted to a WIP account. Then after creating the fixed asset account structure for the school you do a journal entry

    debit the fixed asset account for the grand total, loan value and down payment
    credit a loan liability account you first create for the value of the mortgage
    credit the wip account for the balance


    if you got funds back, then
    deposit that amount to the bank and use the WIP account as the credit, source account for the deposit

     

    at the end of all this, if you did it right, the WIP account should be zero, the liability account should equal the amount of the mortgage, and the fixed asset account should add up to the total of the deposit plus the liability

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