USA Stockholder Redemption Question

[maurem76]

Hello all!

I recently received financials from a local, privately held company. We have a professional relationship with this company. In 2013, a partner owning 31% was bought out for around $1 million with the proceeds of a bank loan. I figured I would see this transaction accounted for through Treasury Stock. However, the accountant reduced common stock by $706k and also reduced retained earnings by $296k, totaling $1 million. The company is a S-corp. Can someone provide guidance as to why retained earnings declined?

 

[kirby]

Entry to treasury stock if the shares were purchased and not retired (still issued but not outstanding) . Entry to reduce common if purchased and retired (no longer issued and no longer outstanding)

 

[Marshall]

If the company retires the repurchased common stock, it cannot reduce the common stock account by more than the amount that was included in common stock account with respect to those shares. The balance needs to come from retained earnings.

 

[maurem76]

Thank you...

for your responses!