How to enter a company acquisition, part cash, part shares AZN/AXLN

User: "chrisonline2"
Updated by mshiggins
I'm struggling to get my head around this, I cannot work it out from the options offered in the Quicken Investing section. AstraZeneca (AZN) has just acquired Alexion (ALXN). The terms were $60 CASH and 2.1243 AZN shares, for each AXLN share.

How can I enter those transactions in my portfolio in Quicken, ensuring correct capital gains treatment (the cash payment is subject to capital gains based on the basis when I bought AXLN shares, but the shares issued by AZN are rolled over at the original basis and do NOT trigger capital gains at this point, only when they are sold at a later date). Obviously the end result should be cash in the cash account, new AZN shares in the portfolio, and zero AXLN shares in the portfolio; and with the capital gains report showing a capital gain for this year based on the cash issued net of the original basis - BUT only that proportion of the original AXLN shareholding (the cash value works out at APPROX 33% of the overall purchase price including value of the AZN shares on the acquisition date).

Sorry if it's complicated to explain, hopefully some bright mind out there will see the light?

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    User: "Tom Young"
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    Accepted Answer
    Updated by Tom Young
    Entering these sorts of stock plus cash transactions into Quicken can be tricky as there's no "wizard" to guide you through the needed entries.  The reason for this is because the income tax rules and regs require some very specific accounting for the transaction.  If you have multiple lots of Alexion you're pretty much forced to do calculations outside of Quicken - a spreadsheet helps - and then make a series of specific entries into Quicken to get you the results you're looking for. 
    The tax rules dictate:
    1.  You need to calculate your gain or loss on a lot-by-lot basis.
    2.  Your true economic gains are calculated as: (cash + FMV of stock received as "proceeds") minus the basis of your stock.
    3.  You report the smaller of the calculated gain or the cash received as gain.
    4.  If you calculate a loss based on the cash + FMV proceeds you can't use the loss.  For a loss lot you report a $0 gain or loss.
    5.  For each lot your basis in the stock of the new company is: Basis in lot of old company tendered - cash received + gain recognized.
    6.  The holding period of the each lot tendered of the old stock carries over to the new lot received of the new stock.  
    Got all that? D

    You can see that a spreadsheet (if you have many lots) is almost a necessity.  When you do your calculations you use the correct exchange ratio - 2.1243 - which will almost certainly create fractional shares for each lot.  That's the correct approach as the full amount of stock received for each lot - including fractions of a share - figure into that lot's "proceeds."
    You should also see at this point that the "basis" you're going to use in your income tax return might be the basis of the lot tendered, (gain calculated on cash plus FMV of stock minus basis is less than cash received), or it might be the lot's entire basis (a "loss"), or some number in between.  That is you "derive" the basis depending on the amount of the reporable gain, or loss.  (It's even more complicated than that for income tax reporting purposes as some brokers report only the cash as proceeds and some brokers report the sum of cash plus FMV of stock as proceeds.)

    Costbasis.com is using $57.77 as the fair market value of the stock received but I can't see that AstraZeneca has yet published a Form 8937 with their own opinion as what the "correct" number might be.  (There's no "cookbook" definition of fair market value in these cases so there can be different opinions.  You might want to hold off until AstraZeneca publishes their version.)
    Having gotten your ducks in a row my method for entering these transactions in Quicken is:
    1. Make one entry to Remove all old shares


    2. Make one entry to Add back all your old short term shares using any date that makes the new "lot" short term and using a per share cost that comes to the derived basis determined above.
    3. Make one entry to Add back all your old long term shares using any date that makes the new "lot" long term and using a per share cost that comes to the derived basis determined above.
    4. Sell your short term and long term holdings for the cash you received for each "lot'.

    At this point your cash (before cash in lieu) is properly stated in Quicken and your long term and short term gains are properly stated.                                                                   
    Now do a series of Add actions to establish each lot of "new" shares using an appropriate "acquired" date (same as date of lot tendered) and an appropriate per share cost to come to the basis you calculated for each lot.                                                                   
    Then you sell whatever fractional shares you "should have" received for the cash in lieu, recognizing a gain or loss as appropriate.                                                                    
                       
    If you have several lots and are willing to share I have a spreadsheet that will calculate all this for you.  Information needed is Date, Number of shares, Per share cost for each lot.