I've been reading the archives, and i think i know how to do this, but wanted to confirm this is the best way.
AT&T just acquired bellsouth ( i own both), and issued 1.325 shares of AT&T for every share of Bellsouth. Inconveninetly for me, i have about
20-30 lots of bellsouth shares from dividends being reinvested. For tax purposes it seems i need to enter each of these lots as a separate transaction in Quicken '05, specifying a new cost basis for each lot (divide the price i paid for each lot by 1.325 for the cost basis, and i get number of shares * 1.325 for AT&T).
My question is what type of transaction is best to do this? Do i just put it as "Add -Shares added" entering number of shares of AT&T, and my cost basis? Putting the transaction date as today, and the "Date Acquired" as the original purchase date of my bellsouth shares? Then i would add another transaction removing all my bellsouth shares?
You have two sets of problems. The first is to determine your basis in your AT&T Inc. shares for each lot of BellSouth Corp. shares that you held at the close of the acquisition on 12/29/06. Your second set of problems is how to enter that into Quicken.
The first problem is worked out for you on BellSouth's Investor Relations page. For the worksheet, see:
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BellSouth provides 7 different calculations, depending on the time period when you acquired each of your lots. Each of the calculations is straightforward; your problem is that you will have to do it multiple times, as you expected: one calculation for each lot of BellSouth shares. Once you have made all those calculations, then you calculate your gain (or loss) on sale of your fractional share - if you were entitled to a fraction. That means that you will have to determine WHICH fractional share was sold: Was it what you got for your earliest BellSouth lot, or for your latest, or for one of the lots in between. Unless you have a reason to choose otherwise, use the FIFO (First In, First Out) rule and report the sale of a fraction of the shares you received for your earliest lot. Report this as a sale on
12/29/06; the selling price is the amount of the check you get. Your cost basis is what you just computed for that earliest batch, times the fraction, and your acquisition date is the date you bought that lot. Your capital gain will be less than the price of one share, of course, and less than your check. Your basis for that fractional share will be subtracted from your recomputed basis for all of that first lot.
All this calculation is simple enough, but tedious because of the multiple lots. You don't really have to make the calculations until you sell all or some of the AT&T shares, but it's best to do it now while your memory is fresh and the information is readily available.
Now, how to put this into Quicken...
As you must have seen when you read the archives, Quicken has a "wizard" to handle this. In the Q2007 I'm running now it is a drop-down menu when we click "Enter Transactions"; in Q2005 I think it was still called "Easy Actions". The one you want is "Corporate Acquisition (stock for stock)". The Company acquired is BellSouth, the Acquiring company is AT&T, and the New shares issued per held share is 1.325. (You can ignore the box for Price per share for acquiring company; this does not enter into the calculation of your new basis in any way, and the question need not even be asked.) Quicken should automatically adjust each lot of your BellSouth stock to reflect the new number of shares and the new basis per share, and add it to your AT&T holdings. Each lot should still show its original acquisition date. You then record the sale of the fractional share, and you're done for now.
Your basis in your previously held AT&T shares should not change at all because of this transaction. Your total basis for all your new AT&T shares (before sale of the fractional share) should equal your original total basis for all your BellSouth shares.
The underlying theory of this transaction is that you own no more and no less after the acquisition than you did before, and it cost you no more or less than what you paid for your BellSouth shares. And your investment dates from when you acquired each lot of BellSouth. The 12/29/06 date is when the form of your holdings changed, but it is not significant in determining whether your eventual gain or loss on your AT&T shares is long-term or short-term.
I'm up late and getting sleepy. I hope I don't spot some subtle - or glaring - error when I read this post again tomorrow. ;^} And, as always, you should have your own CPA review this to be sure that the rules haven't changed in the dozen years since I retired.
Thanks for hte very detailed response RC. Oh, in using "Corporate Acquisition" it looks like each lot cost basis is already recalculated in quicken, when that lot is added to AT&T?
I tried this yesterday and i must have messed something up b/c it didn't work. But now it seems fine....
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