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how to record cash & shares received in stock merger of CNVR to ADS?

Unknown
Unknown Member
edited January 2019 in Investing (Windows)

Comments

  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited May 2018

    These types of transactions, sometimes called cash-to-boot transactions, are possibly the most complex investment transactions that a common Quicken user is likely to see.


    Caveat: I am not a tax-pro, blah, blah, blah. Do your own due diligence, blah, blah, blah. Take my comments at face value and for what they are worth, yada, yada, yada. I am also not a shareholder of either ADS or KLX.



    What I put forth here will be on a per-share basis. I am also commenting in as generic a fashion and as complete a fashion as possible to hopefully assist other users with related or similar questions on this event. If you need to ask follow up questions, please do so.



    Reference: ADS has posted a Form 8937 on their website detailing their perspective on the cost basis and capital gains considerations for this event. See http://phx.corporate-ir.net/phoenix.zhtml?c=120991&p=irol-IRHome. That form is not as helpful as others I have seen, specifically because it does not present a value for the ADS shares received.



    That form and other related merger documents indicate that ADS offered three options to the KLX shareholder.

    1. $35.00 cash – That is easy for the Quicken user. Sell all shares of KLX for $35/share.
    2. 0.124014 shares of ADS for each share of KLX – Also pretty easy. Remove Sshares of KLX and Add Shares of ADS; the basis and acquisition dates remain the same per lot of KLX shares. There is a Quicken macro-transaction, Corporate Acquisition (stock for stock), that adequately automates that process.
    3. 0.07037 shares of ADS and $15.14 cash – You are getting shares of ADS and cash to boot going this way. This is the difficult option to process both in real life and in Quicken. The rest of this discourse will address only this case.
    First, you need to know what you received – the dollar value. The $15.14 is straightforward. The value of the ADS shares, less so. I looked up the trading information for ADS on December 10, 2014. Open = $280.00, High = 280.19, Low = 274.23, and Close = 277.29. Most Form 8937 submittals I have seen presented a value to use. This form does not. The IRS puts the onus on the shareholder to determine this fair-market value.


    I am choosing for this presentation to use the average of the opening and closing values = ($280.00+277.29) / 2 = $277.645 / share of ADS. You may want to use the opening value, the closing value, some other weighted average, etc. Note my opening caveat!!!


    Using my chosen value for one share of ADS, you can now say for your one share of KLX, you received 0.07037 * 277.645 = $19.53788 in ADS value and $15.14 in cash for a total value of $34.67788. If you owned 100 shares of KLX, you received value of $3,467.88



    What you do going forward depends on what you paid for your KLX shares. That needs to be evaluated for each lot of KLX you own – each set of shares bought at a different times for different prices. Either 1) you bought your shares cheaply = below 19.53788/share, 2) you paid a lot for your shares = over 34.67788/share, or 3) you bought in-between.



    1) Your shares were bought cheaply; Basis < Value of Shares Received = 19.53788 per share originally held. For these shares, your cap gain is limited by the amount of cash you received = $15.14.

    • Sell all shares of this lot for (basis + cash received) adding cash to your account
    • Buy proper number of new ADS shares for original basis total amount leaving cash received $15.14 / KLX share in the account.
    • Your total basis in new shares for this lot will equal your prior basis for this lot. The entire cash received is capital gains.
    • Enter a Remove Shares transaction for those ADS shares just bought; Enter an Add Shares transactions for again the same number of shares for same cost but with original lot date as acquisition date.
    • As an example of this first case, if you owned 100 shares of KLX for which you paid $10/share = $1,000, you would:
    • Sell 100 Shares of KLX at 10.00 + 15.14 = 25.14/share = $2,514.
    • Buy 7.037 shares of ADS for $1,000; leaves $1,514 cash in account
    • Your cap gain becomes (sale – basis) = (2,514 - 1,000) = $1,514.
    • Old basis (KLX) = $1,000; New basis (ADS) = $1,000
    2) Your shares were 'expensive'; your basis > Total Value Received = 34.67788 per share originally held. You have no current cap gains liability with respect to this lot.
    • Sell all shares of this lot at basis value adding cash to account
    • Buy proper number of new ADS shares for a lesser amount leaving cash received ($15.14/KLX share) in the account as the cash you received (purchase price is old basis less cash received).
    • Your total basis for this lot will be less than your prior basis for this lot; you have no cap gains now, but will have greater cap gains in the future.
    • Enter a Remove Shares transaction for those ADS shares just bought; Enter an Add Shares transactions for again the same number of shares for same cost but with original lot date as acquisition date.
    • As an example of this second case, if you owned 100 shares of KLX for which you paid $42/share = $4,200, you would:
      • Sell 100 Shares of KLX at 42.00/share = $4,200.
      • Buy 7.037 shares of ADS for (4,200-1,514) = 2,686.00; leaves $1,514 cash in account
      • Your cap gain becomes (sale – basis) = (4,200 - 4,200) = $0.00
      • Old basis (KLX) = $4,200; New basis (ADS) = $2,686
    3) Your shares were bought in-between those two price points. Your have a current cap gain liability, but it is less than cash received.

    • Sell all shares of this lot for value received (34.6788/KLX share) adding cash to your account.
    • Buy proper number of new ADS shares for fair market value of ADS (277.645/ADS share) leaving cash received (15.14/KLX share) in the account.
    • Your total basis for this lot will be greater than your prior basis for this lot. Only part of the cash received is capital gains.
    • Enter a Remove Shares transaction for those ADS shares just bought; Enter an Add Shares transactions for again the same number of shares for same cost but with original lot date as acquisition date.
    • As an example of this third case, if you owned 100 shares of KLX for which you paid $27/share = $2,700, you would:
      • Sell 100 Shares of KLX at 34.6788/share = $3,467.88
      • Buy 7.037 shares of ADS for 277.645 / share = 1,953.788; leaves $1,514 cash in account
      • Your cap gain becomes 3,467.88 – 2700 = $767.88
      • Old basis (KLX) = $2,700; New basis (ADS) = $1,953.79
    Now that the basics are done, you need to deal with the factional shares and cash received in lieu of getting those fractional shares. Enter a Sell Shares transaction for any net fractional shares left after processing all lots of KLX owned. A total holding 750 KLX shares would become 52.7775 shares of ADS. You would sell those 0.7775 shares for whatever cash-in-lieu amount shows up in your brokerage account. It is my belief (note initial caveat) that you can dictate what lot such fractional shares come from, should you care to do so. In reality, it makes very little difference.


    Note that the basic premise in all three sub-cases is that you Sell KLX shares (adding cash to account), Buy ADS shares (removing some of the cash from the account, leaving a net amount), and then Remove ADS shares and Add ADS shares. The first two steps are supposed to get the cash right in your account and to get the cap gains right for you. The last two steps are purely to get the acquisition dates for your new ADS shares to properly match your original KLX holding status for future capital gain evaluation within Quicken. Whether you need to or want to take those last two extra steps is purely up to you.


    (Hopefully I have all the math right above)





    HTH
  • Unknown
    Unknown Member
    edited April 2019

    thank you!  i followed your directions in 1) "your shares were bought cheaply" because my shares of CNVR were bought at $19.  the realized gain is correct at $11,355, but the proceeds of $25,605 & cost basis of $14,250 do not reconcile to the 1099-B.  the brokerage reported $11,355 proceeds and $0 cost because the $14,250 basis was transferred to new ADS shares.  is there any way to get CNVR & ADS transactions into quicken so capital gains report agrees with 1099-B?

  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited April 2019


    Proceeds - Basis = Cap Gains
    You are saying (I think) that the 1099B is reporting 11,355 - 0 = 11,355
    Quicken (via my methodology) is reporting 25,605 - 14,250 = 11,355
    Both are reporting your new basis in ADS is 14,250

    Frankly, your brokerage is wrong (IMO), but it is sort of a "he said, she said" argument.  If the real issue is getting info into tax software, I would make a manual edit within the tax software for the proceeds and basis.  

    There are (or may be) ways to adjust the Quicken info down, but I suspect they would create as many issues as they resolve.  If it is of major importance to you, you could try:
    a) RtrnCap transaction on KLX of $14,250 ($14,250 cash in account)
    b) Sell 750 KLX for $11,355 (Cap gains should be same and agree with 1099B; Cash in Account to $25,605)
    c) Buy 52.7775 ADS for $14,250 (Cash in account to $11,355)
    d) Remove Shares 52.7775 of ADS
    e) Add Shares 52.7775 of ADS, basis = $14,250, acquisition date = KLX acquisition date (ADS holding now correct)
    f) Sell Shares 0.7775 of ADS for cash-in-lieu received

    Note that d) here and the parallel step(s) in my original write-up also generate transaction lines in a Quicken Cap Gains report.  Such entries are not real in these cases and need to be edited out of tax software transfers.  

    RtrnCap transactions in current Quicken versions can be flaky and operate in undesirable manners.  Since it is being applied to your entire basis in this case, you may be able to get away with it.
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