| The procedure for an S corporation Dissolution.
I would have proceeded exactly the same way as you have in that I would have also dissolved the S Corporation if that was clients intent. Alternative strategy would be issue a second class of stock, which would automatically cause IRS to terminate S Corporation status. (See IRS Publication on 1120S- Section on automatic termination of S corporation)
Federal Tax return:
First of all, there is no requirement to file a a dissolution form with the federal government, it is only required for by the State of Incorporation.
The final federal tax return on the 1120 S, should be marked FINAL and there generally should be no assets or capital. The Final K-1's would show all distributions of residual assets to the existing shareholders. I would prepare a final year P & L of course, and show that activity, but the Ending Balance sheet would be Zero'd out.
Potential Issues
There could be income or loss relating to the liquidation of the assets and the receivables which would be reflected on the final tax return.
If there are special situations that could trigger potential gains or losses these would need to be recognized to the shareholders on the liquidation of the S corporation.
Review the AAA account and determine if there are consequences to the liquidation, are there C corporations losses accumulated that would pass to shareholders. I really would recommend that get a 2nd opinion of a CPA who is an expert on S corporations to give you a helping hand, as this phase could be complicated. The consequences of incorrectly preparing a final year tax return may cause you undue headaches later.
Good Luck.
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S Corp conversion to Sole Proprietor 
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