Stock Spin-off


B

Brad Robertson

Trying to enter a Spin-off in Q2003 Deluxe R3. I am getting an error
that states "No Shares Available for Acquired Security". I have filled
in all the blanks as needed (there is a little confusion between the
screen and the help files in the Cost per old share and closing price
per share of your original security area). Has anyone seen this or
entered a spin-off?

Thanks
BRAD
 
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J

Jay Levitt

Trying to enter a Spin-off in Q2003 Deluxe R3. I am getting an error
that states "No Shares Available for Acquired Security". I have filled
in all the blanks as needed (there is a little confusion between the
screen and the help files in the Cost per old share and closing price
per share of your original security area). Has anyone seen this or
entered a spin-off?
I've done plenty of spinoffs in Q2002, and never seen a message like
that... I'm not sure what it could mean. It's generally agreed that the
cost-per-share wording on that dialog stinks, but that's probably not
the source of your problem... are you sure that's exactly what the
message says? In a spinoff, there is no acquired security. Maybe
you're accidentally entering a merger instead of a spinoff?
 
R

R. C. White

Hi, Brad.

I skipped Q2003, but I've used many versions, including Q2002 and now Q2004
Basic. The Spin-off Easy Action has always worked well, with one quirk.
Many threads here have discussed spin-offs and Quicken's handling of them.

The tax code says that we must allocate our basis (cost) for our original
shares between the old and new shares in the ratio of the "fair market
values" of each "immediately after the transaction". Quicken insists on
asking for the "cost" of each security, and the Help file simply adds to the
confusion about what Quicken means by "cost". It should ask for the
per-share FMVs.

Fair Market Value (FMV) is a matter of opinion in any case. For spin-offs
involving listed companies, it is generally considered the opening price on
the morning after the transaction's effective date; in other words, the
first trades of the old company without the former subsidiary and of the new
company. There can be minor variations, depending on which market (NYSE,
NASDAQ, PCSE, etc.) you check and which newspaper or other source you read.
Usually the company's attorneys and accountants make a determination that is
considered "official". They sometimes notify shareholders and stockbrokers
of these FMVs, and nowadays often post them on the company's website,
usually on a page called "Investor Relations" or something similar.
Sometimes they even provide worked-out examples.

A quick-and-easy example: Bought 100 shares of ABC for $50 each; total
basis $5,000. Spun off XYZ, receiving 20 shares for each 100 shares of ABC,
or 20 total. On the morning after, ABC shares trade for $80, XYZ shares for
$20. Total FMV of ABC = 100 x $80 = $8,000; XYZ = 20 x $20 = $400; total of
all shares = $8,400. Allocate original $5,000 basis 8000:400. ABC =
8000/8400 x $5,000 = $4,762 total, /100 = $47.62 per share. XYZ = 400/8400
x $5,000 = $238 total, /20 = $11.90 per share. (Note that the ratio is not
just the simple 80:20 unless the spin-off is 1-for-1. However, the $80 and
$20 are the per-share values we put in when the Easy Action asks for "cost"
per share; Quicken handles the arithmetic based on the number of new shares
per old share that we put in the box above.)

Remember, our total basis after the spin-off should equal our basis before
the transaction. So, test this by calculating the total bases of our
post-spinoff holdings: 100 ABC @ $47.62 = $4,762; 20 XYZ @ $11.90 = $238;
and $4,762 + $238 = $5,000, our original $5,000 basis.

I don't understand your error message about no shares for acquired security.
You should be starting with NO shares of XYZ (in my example). Usually a
spin-off creates a new company, so neither you nor anybody else hold shares
of the acquired security before the spin-off. Do not create the new
security in Quicken before recording the spin-off; let Quicken create it as
a part of the Easy Action. If you already have XYZ in Quicken, delete it
and start the Easy Action again.

RC
 
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B

Brad Robertson

Thanks to both for your responses.
Yes I am sure that is the error message (I'd attach the error window,
but don't know if that would be frowned upon), and I agree it doesn't
make any sense. I also agree that the wording for the values is a little
brutal. As far as the money is concerned, the notice informed me of
the % of basis to each security. Also, Quicken does require a 'new'
company (stock) name (I tried selecting 'record' a 2nd time and it
scolded me).
Unless someone else 'chimes in', I guess I'll wait until I upgrade to
2004 and see what happens or look for a manual way to do it.

Thanks all

BRAD
 

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