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How to enter debt for equity transaction

Unit Corp. went through bankruptcy and reorganized by converting existing bonds that were going to mature in 2021 into new common stock. I had 100 bonds and now the brokerage shows I have 161 shares with value $793.73. I also received a fractional share but the value of it seems to be missing from the brokerage statement (and is not worth trouble to bother with).

Right now I just enter a sale of the bond (at a big loss) and buying the new common stock at the $4.93 per share price.

Is there a better way to record this transaction?

Answers

  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    Hi @Jeffrey Wilens

    Apparently the reorganization has changed you from a bondholder to a stockholder - congratulations, I guess...

    Basically, what's happened is you traded your bonds for the "new" stock.  From a tax viewpoint (although I'm not giving tax advice here), your "basis" in the bonds was carried over to the stock that you now own.  That means that, even though the value of what you now own is quite bit less than what you paid for the original investment, you won't be able to take a loss until you dispose of what you hold under that tax regulations. The only problem with what you've done (as you've described above) is that while it reflects the current value of the investment you now hold, it won't match up to your tax position.  But as long as you don't export your Quicken data into a program that prepares your taxes, you'll be okay.

    Let me know if you have any followups.

    Frankx


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  • Thanks and you are correct that I would not rely on Quicken to accurately report such a complex event for tax purposes. I will rely on how it is characterized in the 1099 issued next year. I could still sell the shares and then capture the capital loss unless I think the stock is going to recover all that lost value.
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