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but dividends were assessed to the shareholders for fair rental value. In another case a
corporation maintained a resort property. The
corporation paid the principal and interest on the mortgage and expenses for it's
maintenance. In some cases the expenses were deducted by the corporation and in
others they were booked to the shareholder loan account. This asset was
eventually transferred to the shareholder and taken off the books. In this
case, the property was booked to the asset account after the beginning of the
year and was taken off before fiscal year end and thus never appeared on the
1120 balance sheet. OTHER RECEIVABLES In one case an
examination of the employee advances account revealed that these advances were cleared out by the corporation by forgiving the debt and booking the amount as an employee bonus at the end of the year. This amount appeared as a deduction in the salaries account but was never accounted for as far as employment taxes and Form W-2 wages were concerned. In another case employee
advances were simply transferred to salaries and wages and, again, never
accounted for on the employment tax returns. LIABILITY AND SHAREHOLDER'S EQUITY Accounts Payable: In one
case, the corporation was making improper accruals
at the end of the year for purchases of parts and paints. Although this entry
reversed itself out in the subsequent year, it materially misstated income for
the year of accrual. TREASURY STOCK In two cases, stock
repurchases have been encountered. Once, the transaction was handled
appropriately with the sale being properly reported by the shareholder. In
another situation, Treasury stock was repurchased from an attorney which
resulted in a $50,000 gain. The gain was properly reported by the attorney but
it is not known at this time how the attorney received the shares in the first
place. 4-4 Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Glossary |