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Recording WK Kellogg (KLG) Spin-Off

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How have people recorded the Kellogg Co (K) / WK Kellogg (KLG) corporate spin-off? Unclear on what information to use for the "Cost per old share" and "Cost per new share" fields, or how best to record the "Cash in Lieu" paid out for fractional shares (thinking just do the spin-off function then record a sale of whatever the cash in lieu is?)

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Comments

Tom Young

The split up of your original basis in Kellogg Co between Kellogg Co and WK Kellogg Co is a calculated number. Quicken isn't really asking for you to make that calculation, it's actually prompting you to input information that will allow it to make that calculation. The input is here is the "fair market value" of each stock immediately after the spin-off. The problem here is that there is no "cookbook" definition of those numbers. In fact, you can come to your own conclusion as to the numbers to use here. Just be prepared to defend them to the IRS if they come asking.

Kellogg has issued a Form 8937 with their recommendations and it's available here:

https://investor.kellanova.com/files/doc_downloads/kd/kellanova-form-8937.pdf

You're safe to use those per-share values here, but you might want to see what numbers your broker is using if you want consistency between your Quicken bases and the broker's bases.

q_lurker

I agree with the comments from @Tom Young. but I sometimes struggle with how to best integrate the current Corporate Spinoff behavior with my desired Quicken behavior. My desire is to have transactions as simple as possible and reports as consistent as possible.

It would seem most users would want their Quicken data to match their brokerage data. So while one can use the Form 8937 prices of K @ $53.80 and KLG @ $13.78 yielding 93.982% of the basis remaining in the K holding and 6.018% transferring to the new KLG holding, that approach may not match the brokerage distribution.

To match the brokerage distribution you can:

Determine the percentage of the basis that remained with the K shares — your brokerage reported basis for K after October 2 divided by your brokerage reported basis for K before October 2. Call it %Kbasis
Identify the price Quicken has for the KLG shares at close on October 2 ($13.35/share)
Compute Effective price for K to produce the same basis retained as
- Effective Price = Share Ratio * KLG-Price * %KBasis / (1 - %KBasis)

Example: In this case, the share ratio is 0.25 (1 for 4) and the chosen closing KLG price is $13.35. If the brokerage data shows K retained 94% of its basis, the Effective price to use for the spinoff would be:

Effective Price = 0.25 * 13.35 * 0.94 / (1 - 0.94) = 52.2875

Why use the closing price on 10/02/23 for the KLG spinoff shares?

Short answer: To get to a simpler presentation of transactions and reports

Long Answer: The current spinoff action for a single lot holding of the parent company (K now known as Kellanova) generates three transactions:

A RtrnCap transaction for K with an amount field (the basis reduction of K = the basis transferred to KLG) and the market value field of the same value.
An oddball MiscInc transaction for K
An Add Shares transaction that adds the shares of KLG with the basis of those shares (same as the RtrnCap transaction amount) and the acquisition date of those original K shares.

The Quicken Investment Performance Report (IPR) is going to show that the number of KLG shares added time the closing price on that date is the additional investment made for the average annual return calculation. That determination is independent of the values used in the spinoff form.

Using the closing value of KLG and an effective value for K yields the correct amount for the basis reduction. The user can then edit the RtrnCap transaction Market value field to be the closing value of KLG times number of KLG shares, that is the closing value of the KLG holding on spinoff date 10/2/23, The user can then delete that oddball MiscInc transaction.

Leads to these transactions

Note that the original basis was $1,050, The percent transferred was 6% = $63.00

The generated IPR is then

Although the oddball MiscIncX of 287.43 brings the Returns into balance with Investments on 10/2/23, it is otherwise not intuitive as to what that transaction is.

If you now edit the RtrnCapX transaction such the Market Value change associated with the spinoff is the 350.43 (26.25 shares * $13.35/share) and delete the oddball MiscIncX transaction,

you get a simpler, more intuitive and understandable IPR

I should add that if you use something other than the actual closing price of the spinoff (KLG at 13.35) in the spinoff window, the MiscIncX value will change accordingly. That just makes that value even harder to understand.