Investment Account: How book gain on share conversion transactions

dave344

My broker implemented a share conversion operation whereby shares in one fund were swapped with shares of another. For example, 10 shares of VOYA GLOBAL EQUITY C SHARE CLASS were swapped out for 7 shares of VOYA GLOBAL EQUITY A SHARE CLASS. All transactions were downloaded into Quicken which defaulted them to a series of "Addeds" and "Removeds." The old shares went out at basis and the new shares came in at market. But no gain was ever recognized. My problem is how to account for this step up in basis? I now have what is essentially a one-sided accounting entry in my system: an increase in asset value without any corresponding revenue recognition. It doesn't matter for tax reporting because this is a 401K account. However, when I run an income statement I am short the gain that should have been recognized on conversion. The income reported no longer ties my beginning and ending net worth together, it is short by the amount of the conversion gain. I can run the income statement with "All Transfers Included" and the gain will show up there as "Bal Fwd 401K Morgan Stanley" but this is not proper reporting. I could go back and adjust the basis in each of the 50+ conversion transactions but this is almost a day's worth of work with the calculations and data entry. What I want to do is just book the gain in a single entry. But what is the other side? I credit a gain and debit what? And how? I just need to get the gain (i.e., the bumped up basis) properly on my books. Does anyone have any suggestions?

Sherlock

The correct way to handle a mutual fund conversion should be implemented using the Mutual Fund Conversion wizard.  If the Mutual Fund Conversion wizard doesn't produce the correct cost-basis, we may use the Corporate Acquisition wizard instead but we may then need to remove the transactions introduced in other accounts where we may still hold the original mutual fund class.

I suggest you save a backup (press Ctrl + B) and remove the imported Added and Removed transactions you accepted.  Then try the Mutual Fund Conversion wizard: select Enter Transactions and Mutual Fund Conversion in the Enter transactions: pull-down menu.

dave344

Thanks Sherlock. How do I invoke the "Mutual Fund Conversion" wizard? I am using Quicken 2017 Deluxe and in the process of scrubbing the data before upgrading to the online Quicken.

Sherlock

dave344 said:

Thanks Sherlock. How do I invoke the "Mutual Fund Conversion" wizard? I am using Quicken 2017 Deluxe and in the process of scrubbing the data before upgrading to the online Quicken.

There is no such thing as upgrading to the online Quicken.  I suspect you mean upgrading to Quicken 2020 by installing and activating a subscription.

To invoke the Mutual Fund Conversion wizard: select Enter Transactions and Mutual Fund Conversion in the Enter transactions: pull-down menu:

dave344

Thank you Sherlock. Yes, you are correct, I am upgrading from 2017 to 2020. In fact I just purchased a subscription last night but I am working on cleaning my data up before I convert. And thank you for the heads up on the mutual fund conversion tool. I did not see that option before I spent about 6 hours trying to manually adjust the basis myself.

I adjusted the basis of all of the "added" shares to equal all of the "removed" share basis. This would eliminate the gain that was created when the new share were brought in at market value and the old shares removed at cost. In most cases this worked as intended. However in one case it produced some bizarre and inconsistent results: the basis in some of the "removed" shares changed between the value in the register and what is shown in a report. In order to illustrate what I am talking about, I prepared four screen shots with annotations which I attach here: "1" is a before shot; "2" is an after shot; "3" shows inconsistencies in the report; and "4" shows what I think is the very bizarre nature of the discrepancy. Keep in mind that no adjustments were ever posted to any of the "removed" shares (which are the ones showing the discrepancy.) The only adjustments made were to the basis (cost) of the "added" shares through the amount (and price) values. The file has passed super validation several times in the past few days.

Am I just punch-drunk or has anyone ever seen such a strange data discrepancy between register and report?

Sherlock

dave344 said:

Thank you Sherlock. Yes, you are correct, I am upgrading from 2017 to 2020. In fact I just purchased a subscription last night but I am working on cleaning my data up before I convert. And thank you for the heads up on the mutual fund conversion tool. I did not see that option before I spent about 6 hours trying to manually adjust the basis myself.

I adjusted the basis of all of the "added" shares to equal all of the "removed" share basis. This would eliminate the gain that was created when the new share were brought in at market value and the old shares removed at cost. In most cases this worked as intended. However in one case it produced some bizarre and inconsistent results: the basis in some of the "removed" shares changed between the value in the register and what is shown in a report. In order to illustrate what I am talking about, I prepared four screen shots with annotations which I attach here: "1" is a before shot; "2" is an after shot; "3" shows inconsistencies in the report; and "4" shows what I think is the very bizarre nature of the discrepancy. Keep in mind that no adjustments were ever posted to any of the "removed" shares (which are the ones showing the discrepancy.) The only adjustments made were to the basis (cost) of the "added" shares through the amount (and price) values. The file has passed super validation several times in the past few days.

Am I just punch-drunk or has anyone ever seen such a strange data discrepancy between register and report?

The amount you are referring to as the "removed" basis is actually the calculated gain/loss associated with the transaction for tracking the amount invested.  When you changed the Added transaction, you changed the price of the security on that day and therefore influenced the gain/loss calculation.

dave344

Thanks for your help Sherlock but I'm not sure that's correct. The price of the "added" security was changed when I adjusted the basis. However this should have no impact on the price of the "removed" security which I have never touched. It is the price of the "removed" security that is incorrect in the report.

Just to be clear, this issue was generated through a series of "Add" and "Remove" transactions that were downloaded from the broker over a period of three years. For example, I might receive one transaction that says Remove 10 shares of PCOAX (basis of 100) together with a transaction that says Add 12 shares of PNSAX with a market value of 240. These are TWO SEPARATE securities, with independent prices. In this simple example the "removed basis" is 100 and the "added basis" is 240 The difference between the two (240-100=140) is the gain that is introduced into my system without ever passing through the income statement and is the central issue here.

This is a retirement account so it doesn't mater to me whether I recognize the gain (step up basis) or defer it (carry over basis). What is important is that if gain is going to be booked, it flows through the income statement. This is essential in order to account for the changes in net worth between years. As it stands now, this is not the case. The gain is only visible in the "Bal Fwd" section of the transfers. If I print my income statement without all the messy and confusing transfers, 1'll never know how I got from beginning to ending net worth.

Thank you for the info on the Mutual Fund Conversion tool. However this has some limitations that I do not think will allow it to work for me. It allows me to specify the "added" and "removed" securities but it only allows me to specify the number of "added" shares, not the number of removed shares. So apparently it will apply all the new shares to ALL OF THE EXISTING SHARES. This is a problem for me as my conversion happened in waves over time. For example, 100 shares might have been removed in seven batches over three years. The tool does not appear to allow me to specify a block of new shares to replace only SOME of the old shares.

Thanks for your help.

kinggeorge1st

I am experiencing similar problems for a simple corporate action of exchanging Class C shares for Class A shares of the same Mutual Fund. Quiken does not allow you to enter the number of shares and closing price of the old shares as well as the number of shares and and price of the new shares. No matter what I enter for the number of shares in the new Class, an Error Message appears stating: No shares available for the acquired security.
It's hair pulling time!