QSub financial statement presentation

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#1
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PA
We have a client that formed an LLC that will make a Qsub election to have an existing S corp as its Q sub. The bank has asked us to prepare a balance sheet for the LLC on day 1 of its operations. Would that balance sheet include the S corp balance sheet as all of this will be presented on one tax return eventually? Or for book purposes, do you prepare two separate and distinct sets of books and only merge them for tax return purposes?

We have never dealt with a Qsub situation. Thank you for your help!
 

#2
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21-May-2018 7:50am
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Northern MI and Coastal SC
For the QSUB to be effective, the parent entity has to wholly OWN the QSUB.

I do not need to adhere to GAAP in these scenarios, but what I do is maintain separate books for operations and simply roll them into consolidated financials at year-end and for tax purposes. I present both companies in separate columns and then totaled in a third column that reflects the grouped activities.

If GAAP is not a concern, then it comes down to what the bank is requesting. That is why I prepare things the way I do, because it allows them to analyze financials for each entity but also as consolidated in order to reconcile to the tax return.
 

#3
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I have one of these as well, not subject to GAAP. I also maintain separate books for the main entity and the Q Sub and just combine at year end for tax purposes. Cornerstone is correct that the parent entity has to wholly own the QSUB. I show the payment to purchase the Q Sub as an investment on the main entity's books, and adjust the investment by the income/loss of the Q Sub each year.
 


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