USA Intercompany cash transactions - when I/C no longer exists

[Lucilla0522]

How do I reconcile an intercompany account for a company that's been sold? The former parent company maintained bank accounts with positive balances but the subsidiary bank accounts were sweep accounts with a zero balance at the end of each day. So the parent provided cash to cover all the outgoing payments of the sub. The sub was then sold but some liabilities that remained were incurred prior to sale so were still the responsibility of the parent. They continued to fund the transfers to cover the liabilities so those incoming funds were recorded to intercompany as had been the practice in the past. However, there is no longer an intercompany relationship but I'm left with a huge I/C balance. So my question is, how should the incoming cash have been recorded or how do I eliminate the I/C balance?

 

[kirby]

Is the I/C balance you have now entirely from post sale transactions?

Are you talking about the I/C balance on the former sub?

 

[kirby]

Also, did former sub get funds from former parent for anything other than liabilities that existed at sale date?

 

[Lucilla0522]

I am referring to the I/C balance on the sub. The liabilities are mainly from payroll taxes that were incurred pre sale and paid post sale. Since they were the former parents responsibility they provided the cash to cover them. They payments all happened post sale (weekly, monthly, quarterly payroll taxes) but none of the liabilities were incurred post sale. I hope that answers your questions.

 

[kirby]

OK, there are two likely possibilities:
A) The former parent will need to be repaid
B) The former parent will not need to be repaid
To find out, you need to ask mgmt and see if they will condescend to give you some info. They should have done so already.
If answer is A, then move the balances in your I/C acct to a payable acct to pay former parent.
If answer is B, then move the balance to paid in capital equity acct but first get approval from mgmt. if no approval, leave as is and let your auditors deal with your mgmt on this.