USA Intercompany Capital Contribution - Capital Distribution in Form of Note - How Report & Disclose

[AnnieT]

Greetings! I would appreciate any guidance on how to report an intercompany capital distribution in the form of a note from subsidiary to Parent Company. Normally, an intercompany loan would be eliminated at Parent. However, we are wondering if this transaction would be structured differently than a loan and reported at gross or merely disclosed. Also, would there be any special disclosure requirements beyond the basic transaction details?
Thank you!

 

[kirby]

Time has passed and Enron is forgotten. Translation: one of the goofs that Enron's CPA's missed was that Enron's capital account was increased in exchange for a note receivable, just like you are discussing. You can look that error up in the article below where it talks about the Raptor entities.

So ask yourself how this is not just simply an intercompany loan.

The Rise and Fall of Enron

If you’re like most, you’ve been astonished, disillusioned and angered as you learned of the meteoric rise and fall of Enron Corp. Remember

www.journalofaccountancy.com

 

[AnnieT]

Yikes! This header in your article sums up my quandary well: "IN A WAY IT'S SIMPLE, IN A WAY IT'S NOT"
I found another great JOA article that also begins on the ominous note of how RPT continue to play a role in Accounting failures and fraud. However, in our case, I am fairly certain that no SPE are involved as with Enron's debacle.

What's a little debt between friends? How to apply accounting rules for related-party transactions.

The Rise and Fall of Enron

If you’re like most, you’ve been astonished, disillusioned and angered as you learned of the meteoric rise and fall of Enron Corp. Remember

www.journalofaccountancy.com

From my current understanding, the article's Type 1 scenario may be applicable. However, the relationship is reversed as Subsidiary is making Note to Parent.

________________________________________________
Type 1: Owner’s Debt Converted to Equity

"One interesting scenario is when an entity converts related-party debt into equity. Preparers might struggle with the issues involved in these transactions because they are not routine and the accounting guidance is slim. In many cases in which an entity has debt outstanding to an owner, and the owner enters into a transaction to convert that debt to equity, the fair value of the equity exchanged does not equal the outstanding balance of the debt. Preparers then must determine whether to recognize a gain or a loss—or some other type of transaction, such as a capital contribution—for the difference between the fair value of the equity and the carrying value of the debt."
___________________________________________________

 

[kirby]

So to clarify:

Parent Books
DR Intercompany Note Receivable from Sub $xxx
CR ??? Acct "A"

Sub's Books
DR ??? Acct "B"
CR Intercompany Note Payable to Parent

QUESTION: What accounts are planned to be used for Acct A and Acct B above??