How do I set up a fixed asset and shareholder loan (S-Corp) when the loan amount is less than purchase price?

sopranoi · ‎January 25, 2024

We are an S-corp. My husband and I are the only shareholders. We loaned our company personal money for a fixed asset (truck), but not for the whole amount. (Yes, I am aware of the pros/cons of this and am applying interest to our loan).

Details:
1. Fixed Asset (Construction Equipment:Truck) purchase price: $20,000.
2. Two deposits of personal funds into company checking: $10,000 and $8,000.
3. Two withdrawals for cashier's checks from company checking: $10,000 and $10,000.

What I have done (mostly incorrectly I'm sure):
1. Created the Fixed Asset under Construction Equipment:Construction Equip-Truck.
2. Created a Long-Term Liability Account
a. Name: "Loan for Truck"
b. Detail: Shareholder Note Payable
c. Amount: $18,000
3. Created a Journal Entry to "Set up Truck Loan" as follows:
a. Construction Equipment:Truck
b. DEBIT $18,000, Loan for Truck
b. CREDIT $18,000, Used account SHAREHOLDER DISTRIBUTION 1 for the two deposits
5. Used account CONSTRUCTION EQUIPMENT (Fixed Asset) for the two withdrawals. (When I used the subaccount for Truck it doubled the balance).
6. When making payments to our personal account for the truck loan, I directly transfer money from company to personal online and apply to the account: Loan for Truck. I do journal entries for the interest expense.

Need Help:
1. Set up the Fixed Asset for the full purchase amount of $20,000 (not just $18,000).
2. Set up the Long-Term Liability (Shareholder Loan) for $18,000 and categorize the $2,000 contributed from our company correctly.
3. Categorize the deposits made from personal correctly.
4. Categorize the withdrawals made for truck purchase payments correctly.
5. Categorize the payments made to personal account each month correctly.

I know this is extremely confusing, which is why I'm asking for help.
In summary, we personally loaned our company $18,000, our company purchased a truck for $20,000 (contributing the $2,000) and I don't know how to set up or categorize any of this or do journal entries the way I should.

Rainflurry · ‎January 26, 2024

@sopranoi

There are no journal entries needed.

First, record the personal deposits into the bank account. Create two separate deposits ($10K and $8K) and assign Shareholder Loan Payable to both deposits. You now have the cash in the business bank account and the $18K loan payable liability.

Then, to record the purchase of the truck, create two Expense transactions for $10K/each. Assign the proper bank account and truck's fixed asset account as the category to each transaction. This records the $20K reduction in cash and puts the $20K fixed asset on the books.

When you make payments on the loan, create a check and assign the principal portion to the Shareholder Loan Payable liability account and the interest portion to interest expense. You're all set.

View solution in original post

Rainflurry · ‎January 26, 2024

@sopranoi

There are no journal entries needed.

First, record the personal deposits into the bank account. Create two separate deposits ($10K and $8K) and assign Shareholder Loan Payable to both deposits. You now have the cash in the business bank account and the $18K loan payable liability.

Then, to record the purchase of the truck, create two Expense transactions for $10K/each. Assign the proper bank account and truck's fixed asset account as the category to each transaction. This records the $20K reduction in cash and puts the $20K fixed asset on the books.

When you make payments on the loan, create a check and assign the principal portion to the Shareholder Loan Payable liability account and the interest portion to interest expense. You're all set.

sopranoi · ‎January 26, 2024

Thank you! I think I did this right?

How I created the Fixed Asset:

Save Account Under: Construction Equipment (Other Current Asset)
Tax Form Section: Machinery & Equipment (Tax acct. put our excavator under "Other Current Asset", so not sure if I should make it the same or change excavator since past taxes have been done).
Account Name: Construction Equip-Truck

How I created the Long-Term Liability

Account: Long-Term Liabilities
Tax Form Section: Shareholder Notes Payable.
Account Name: Loan for Truck.

How I entered the two deposits:

Received From: Shareholder Name
Account: Loan for Truck

How I entered the two payments:

Category: Construction Equipment:Construction Equip-Truck

Fixed Asset Balance: $20,000.

Loan Balance for Truck: $18,000.

All payments have been categorized to "Loan for Truck" and the interest to "Interest Expense."

I cannot thank you enough if this is correct. I don't know why I was having such a hard time! Thank you! Thank you!

Rainflurry · ‎January 26, 2024

@sopranoi

"How I created the Fixed Asset:

Save Account Under: Construction Equipment (Other Current Asset)"

Everything else is fine except under 'Save account under', select Fixed Assets, not Other Current Assets.

sopranoi · ‎January 27, 2024

Oh sheesh. I actually do have it in fixed assets. I think I typed "other" because I saw that under details in my chart of accounts. Thanks again! You have helped me so much!!

Thanks in Advance

I have a similar situation but with a twist:

I loaned the company 20k to purchase vehicle:

I made a bank deposit from account "Loan from Shareholder" (LT Liab) $20k.

So there's 20k cashflow deposited in the bank account. Bank account ledger shows 20k increase.

The "Loan from Shareholder" ledger shows:

(from bank) 20k increase = 20k balance.

So far so good.

I "sold" my own vehicle to the company, so there is no cashflow to a third party. The 20k stays in the bank.

Eventually in the future, I'll have the Co. pay me back, reducing the "Loan from Shareholder" balance.

My problem is giving the vehicle an asset value of 20k so it properly shows on the balance sheet.

If I tie it to the "Loan from Shareholder" ledger, it will show:

1st entry... ( (from bank) 20k increase with a 20k balance)

2nd entry... (from "Property/Equipment Vehicle, asset") 20k increase with a new 40k balance (it doubles the true balance). Now there's a 40k debt.

What would be the correct way to add the 20k asset value to the vehicle that balances out without doubling the debt?

I hope I didn't confuse everyone

Rainflurry

@Thanks in Advance

The $20K loan to the business has nothing to do with the vehicle - it is a separate and distinct accounting transaction. You recorded that properly.

If you contributed a personal vehicle to the S-Corp and received no cash, that should be recorded as a shareholder contribution at the vehicle's fair market value (FMV). If that's $20K, then the proper entry is a journal entry that debits the vehicle's fixed asset account $20K and credits Shareholder Contributions $20K. If the FMV of the vehicle is $25K, then debit the fixed asset account $25K and credit Shareholder Contributions $25K. That will increase the vehicle's fixed asset account by the FMV with an equal and offsetting shareholder contribution.

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How do I set up a fixed asset and shareholder loan (S-Corp) when the loan amount is less than purchase price?