Bond spun off from a stock

Sam KielSam Kiel Member
edited January 2019 in Investing (Windows)

How do i enter the receipt of a bond that was spun off from an existing equity holding? When I tried to do that, Quicken created a series of 'return of capital' entries (retroactive, dating back to the original stock purchase). The result was a significant increase in the cash position - which wasn't correct - and no entry for the bond that was spun-off. (I use Quicken Premier 2019 for Windows, Windows 10 Home edition.)

Comments

  • NotACPANotACPA SuperUser ✭✭✭✭✭
    edited December 2018
    Can you name the stock?  I, and I suspect a few others, would like to research this.

    Because while I've heard of convertible bonds, I've NEVER heard of a bond spinning of stock.
    Q user since DOS version 5
    Now running Quicken Windows Subscription,  Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • Sam KielSam Kiel Member
    edited December 2018
    It’s MUELLER INDS INC., symbol MLI, and the spin-off occurred 3/10/17 - a subordinated debenture. , 6%, maturing 3/01/2027. Please let me know if you need more info. Thanks so much!
  • q_lurkerq_lurker SuperUser ✭✭✭✭✭
    edited December 2018
    When I tried to do that, Quicken created a series of 'return of capital' entries...
    Also what exactly did you try to do?  I didn't think a Corporate Spinoff with QW2019 would have generated RtrnCap transactions backdated.  (Earlier versions of Quicken would have.)

  • q_lurkerq_lurker SuperUser ✭✭✭✭✭
    edited December 2018
    q.lurker said:

    When I tried to do that, Quicken created a series of 'return of capital' entries...
    Also what exactly did you try to do?  I didn't think a Corporate Spinoff with QW2019 would have generated RtrnCap transactions backdated.  (Earlier versions of Quicken would have.)

    Based on what I see here:  http://www.muellerindustries.com/investors for their Special Dividend FAQs, it appears to me that (for Quicken's purposes) you received an $8/sh cash dividend and used $5/sh of that to buy the debenture. 

    From then, the debenture (bond) should have been trading as a security, over the counter.  I did not pursue what the marketplace was valuing them at or under what nomenclature or symbols they traded.  
  • NotACPANotACPA SuperUser ✭✭✭✭✭
    edited December 2018


    Mueller Industries, Inc. Announces Payment and Record Dates for Special Dividend





    MEMPHIS, Tenn.,
    January 25, 2017 -- Mueller Industries, Inc. (NYSE: MLI) announced today
    that the special dividend on its common stock will be payable March 9,
    2017, to stockholders of record on February 28, 2017.  As previously
    announced, the special dividend will consist of $3.00 in cash and $5.00
    in principal amount of the Company's 6% Subordinated Debentures
    due 2027
    for each share of common stock (less any applicable withholding tax). 

    The problems with your calculations is that, per the above from Mueller's webpage, it was NOT a spin-off.  It was a DIVIDEND.

    Record it as such, and you should be good to go.

    The details would be:
    1) Record $8 of cash dividend
    2) Purchase the bond with the $5 portion
    Q user since DOS version 5
    Now running Quicken Windows Subscription,  Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • Sam KielSam Kiel Member
    edited December 2018
    q.lurker said:

    When I tried to do that, Quicken created a series of 'return of capital' entries...
    Also what exactly did you try to do?  I didn't think a Corporate Spinoff with QW2019 would have generated RtrnCap transactions backdated.  (Earlier versions of Quicken would have.)

    To answer your question, it’s been a while since I made the entry and I don’t remember exactly what I did. I called the Quicken help desk at the desk and I believe I judt followed their instructions and made whatever entry they said.


    Are you saying that I need to make a new, separate entry for the purchase of the resulting bond? And would I keep the series of ‘return of capital’ entries? Sounds like I should...
  • q_lurkerq_lurker SuperUser ✭✭✭✭✭
    edited December 2018
    q.lurker said:

    When I tried to do that, Quicken created a series of 'return of capital' entries...
    Also what exactly did you try to do?  I didn't think a Corporate Spinoff with QW2019 would have generated RtrnCap transactions backdated.  (Earlier versions of Quicken would have.)

    For March 9, 2017, your Quicken should have a dividend payment of $8/share.
    Same date, a Buy Shares for the debenture security.

    Delete any other transactions (RtrnCap, Buy Shares) in the file relevant to this special dividend (not a 'spinoff') especially those backdated transactions.  

    In Sept, 2017, March, 2018 and Sept. 2018, you should be seeing interest income received from the debenture security.  

    Other dividend income from Mueller stock before and after this 'special dividend' should not be affected.  
  • Sam KielSam Kiel Member
    edited December 2018
    OK, I see now. It’s not ‘return of capital’ at all and I should delete all those entries. I then need only 2 entries ago record this - the dividend entry and the bond purchase entry. Sounds straightforward, thank you very much.



    It bothers me a little that after I do this and then want to check my investment performance the bond wouldn’t be reflected as resulting from the original stock purchase. It sounds like a report for my performance wouldn’t reflect the full return from this particular stock. The resulting bond would appear to be a stand-alone investment, right?
  • Sam KielSam Kiel Member
    edited December 2018
    q.lurker said:

    When I tried to do that, Quicken created a series of 'return of capital' entries...
    Also what exactly did you try to do?  I didn't think a Corporate Spinoff with QW2019 would have generated RtrnCap transactions backdated.  (Earlier versions of Quicken would have.)

    Yes, thanks to you and ‘Not a CPA’, I understand now. And since it’s not a spin off and only a dividend, the original basis (purchase price) remains unchanged and therefore have no tax-related impact when I sell the stock - right?
  • q_lurkerq_lurker SuperUser ✭✭✭✭✭
    edited December 2018
    Sam Kiel said:

    OK, I see now. It’s not ‘return of capital’ at all and I should delete all those entries. I then need only 2 entries ago record this - the dividend entry and the bond purchase entry. Sounds straightforward, thank you very much.



    It bothers me a little that after I do this and then want to check my investment performance the bond wouldn’t be reflected as resulting from the original stock purchase. It sounds like a report for my performance wouldn’t reflect the full return from this particular stock. The resulting bond would appear to be a stand-alone investment, right?

    The "full return" from the stock is the $8 dividend. That $5 of that was then put into (or not immediately taken out from) the debenture was a separate investment decision you 'made'.  That is paying you nominally 6% per year - not a bad rate at all these days (which means the market value for the debentures may be something very different from face value).  

    If you like, you can use the Investment Performance report customized to those two specific securities, and get the average annual return for that combination.  Choose a time span meaning for you, but preferably longer than 1 year.  
  • Sam KielSam Kiel Member
    edited December 2018
    Sam Kiel said:

    OK, I see now. It’s not ‘return of capital’ at all and I should delete all those entries. I then need only 2 entries ago record this - the dividend entry and the bond purchase entry. Sounds straightforward, thank you very much.



    It bothers me a little that after I do this and then want to check my investment performance the bond wouldn’t be reflected as resulting from the original stock purchase. It sounds like a report for my performance wouldn’t reflect the full return from this particular stock. The resulting bond would appear to be a stand-alone investment, right?

    Thank you for your help!
  • q_lurkerq_lurker SuperUser ✭✭✭✭✭
    edited December 2018
    q.lurker said:

    When I tried to do that, Quicken created a series of 'return of capital' entries...
    Also what exactly did you try to do?  I didn't think a Corporate Spinoff with QW2019 would have generated RtrnCap transactions backdated.  (Earlier versions of Quicken would have.)

    Right -- but it as also true that I am not a CPA, tax guru, enrolled agent, yada-yada-yada.  So should you take my word for it?  Read those FAQ's I pointed at earlier.  As I recall, they pretty well spell out the tax consequences - at least at the time of the special dividend.
  • SimonSezSoSimonSezSo Member ✭✭
    edited December 2018
    q.lurker said:

    When I tried to do that, Quicken created a series of 'return of capital' entries...
    Also what exactly did you try to do?  I didn't think a Corporate Spinoff with QW2019 would have generated RtrnCap transactions backdated.  (Earlier versions of Quicken would have.)

    q.lurker, please reread Sam's e-mail.  I think he was addressing you and NotACPA.  He wasn't referring to you as "Not a CPA".

    (Sorry Sam for interceding)
  • q_lurkerq_lurker SuperUser ✭✭✭✭✭
    edited December 2018
    q.lurker said:

    When I tried to do that, Quicken created a series of 'return of capital' entries...
    Also what exactly did you try to do?  I didn't think a Corporate Spinoff with QW2019 would have generated RtrnCap transactions backdated.  (Earlier versions of Quicken would have.)

    @SSS -- Please re-read my post.  While NotACPA has implicitly identified himself for many year as "Not a CPA", I clearly stated that "it is ALSO true that I am not a CPA, ...".  I understood who Sam was thanking.  I was further identifying my lack of credentials.

    There is a broad gray line around here about giving tax advice.  It is sometimes difficult to know when one has approached or crossed the line.  While I may frequently suggest how I might approach a situation, I try to be clear that the internet and this forum can be a risky place to turn to for tax advice.  We are all nameless faceless persons (and a few bots).  Readers should not do something tax wise based on posts I make without doing their own due diligence.
    no tax-related impact when I sell the stock - right?
    ???  There are exceptions, I suspect.  

    Have a happy and safe New Year.  
  • SimonSezSoSimonSezSo Member ✭✭
    edited December 2018
    q.lurker said:

    When I tried to do that, Quicken created a series of 'return of capital' entries...
    Also what exactly did you try to do?  I didn't think a Corporate Spinoff with QW2019 would have generated RtrnCap transactions backdated.  (Earlier versions of Quicken would have.)

    Thank you q.lurker and the same to you.  I apologize for misunderstanding your other post.

    I totally agree with what you just posted.
  • NotACPANotACPA SuperUser ✭✭✭✭✭
    edited December 2018
    q.lurker said:

    When I tried to do that, Quicken created a series of 'return of capital' entries...
    Also what exactly did you try to do?  I didn't think a Corporate Spinoff with QW2019 would have generated RtrnCap transactions backdated.  (Earlier versions of Quicken would have.)

    BTW, my ID is a joke. It's true that I'm Not A CPA ... but I AM a retired Certified Information Systems Auditor ... and unlike the CPAs I needed to know (and demonstrate) knowledge of both accounting AND the computer.

    BECAUSE, as I've stated multiple times (in other forums) the letters CPA and CPU are mutually exclusive ... if you've got one it's unlikely you'll understand the other.

    Also, the few people that I know who have both CPA and CISA designations will tell you that a CISA is every bit as difficult to earn as a CPA.
    Q user since DOS version 5
    Now running Quicken Windows Subscription,  Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
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