I'm trying to help this restaurant get their books in order at 12/31/14 so I can do their tax return for last year which is on extension.
Firstly, they bought the business in june, 2014. The purchase price looks about like this:
Price 188k
Assets acquired 60k
Non compete agreement 25k
consulting agreement 24k
Note to seller 25k
Goodwill 54k
My first question is the consulting agreement was record as a debit to an asset which has just been sitting there on the books and the credit went to a liability account. The deal is the seller is frequenting the business and helping out still maintain the good relationships with previous clientele, etc. He is being paid $1000/month for 24 months. Thus the checks are being debited to the liability account and credited to cash. My question is what about the asset account? At the end of 2014, should I make an adjustment to this account on the balance sheet? The liability is $7k less at 17k I believe. If I credit the asset account by 7k to match the liability what should the debt entry go to?
Secondly, this company is setup as an LLC. They incurred a 36k loss from the time they bought the restaurant in June to 12/31/14. Is there any benefit to them electing to be taxed as an Scorp as opposed to just filing as a single member LLC. (done on the member's 1040 tax return) ? No distributions were taken so there is no benefit of not having to pay FICA tax on amounts taken out. They are doing better now in 2015. Can they file their original tax return as the single member LLC and make a 2015 election to be taxed as a SCorp? (form 2553) If so, do they first have to file from 8332 election to be an association treated as a corporation?
In recording their daily sales activity, tips are being completely left out of the journal entry into quickbooks. His point of sale system does have record of the tips on all the credit card receipts. He statement to me is that it is up to the employees to give him the correct amount of tips. But in this type of business, the cash tips are just pocketed usually and no one reports accurately the amount. Each server carries a pouch of cash with $50 in it and pays themselves their tips each night. So the manager wants to eliminate the tips holding account and tips liability account from his chart of accounts. Is this okay? They originally started using these accounts but they were zeroed out later on with an AJE.
Thanks for your help.
Scot King
CPA
Firstly, they bought the business in june, 2014. The purchase price looks about like this:
Price 188k
Assets acquired 60k
Non compete agreement 25k
consulting agreement 24k
Note to seller 25k
Goodwill 54k
My first question is the consulting agreement was record as a debit to an asset which has just been sitting there on the books and the credit went to a liability account. The deal is the seller is frequenting the business and helping out still maintain the good relationships with previous clientele, etc. He is being paid $1000/month for 24 months. Thus the checks are being debited to the liability account and credited to cash. My question is what about the asset account? At the end of 2014, should I make an adjustment to this account on the balance sheet? The liability is $7k less at 17k I believe. If I credit the asset account by 7k to match the liability what should the debt entry go to?
Secondly, this company is setup as an LLC. They incurred a 36k loss from the time they bought the restaurant in June to 12/31/14. Is there any benefit to them electing to be taxed as an Scorp as opposed to just filing as a single member LLC. (done on the member's 1040 tax return) ? No distributions were taken so there is no benefit of not having to pay FICA tax on amounts taken out. They are doing better now in 2015. Can they file their original tax return as the single member LLC and make a 2015 election to be taxed as a SCorp? (form 2553) If so, do they first have to file from 8332 election to be an association treated as a corporation?
In recording their daily sales activity, tips are being completely left out of the journal entry into quickbooks. His point of sale system does have record of the tips on all the credit card receipts. He statement to me is that it is up to the employees to give him the correct amount of tips. But in this type of business, the cash tips are just pocketed usually and no one reports accurately the amount. Each server carries a pouch of cash with $50 in it and pays themselves their tips each night. So the manager wants to eliminate the tips holding account and tips liability account from his chart of accounts. Is this okay? They originally started using these accounts but they were zeroed out later on with an AJE.
Thanks for your help.
Scot King
CPA
