Corporate Acquisition (Stock for Stock) messed me up!

On May 18, Vanguard converted 14,704.535 old (Investor) shares to 6,547.334 new (Admiral) shares, giving a conversion factor of 0.4452595.

In Security Detail View, I selected Corporate Acquisition (Stock for Stock) and filled in the boxes, inserting .4452595 for New shares issued per held share. I left Price per Share blank, but transaction would not record unless I put in price. (In Quicken 2003, you cannot get to Corporate Acquisition in the drop down boxes in Register View)

The result calculated by Quicken was 6,547.341254 new shares, which equates to a conversion factor of 0.44526 and which gives me .00725 shares too much. However, even more distressing is that my cost basis, which was $335,251.34 before recording the conversion, shows as $334,847.86 after recording the conversion. Somehow, Quicken "lost" $403.48 in cost basis!

Does anybody have thoughts on what might be going on here? How in the world do I correct my cost basis? I have tried to see if the answer might be in all the past posts on this subject, but couldn't find anything. I imagine I can correct the share balance by Using Shares out.

Thanks for any advice.

Bob Leavitt

Reply to
BobLeavitt
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I have never used Q2003, so I can not give any certain advice. But if Q2003 works like other versions that say you must enter a price/share, you can just ignore the alleged requirement and click OK when Quicken displays the demand without putting a value in price/share; on the second try, Quicken will accept the number of shares and the total price and calculate the price/share itself.

Reply to
John Pollard

In my version of Quicken (2003), when attempting to enter data with no price per share, a msg box pops up saying "This field may not be left blank". This happens no matter how many times I try. In addition to popping up the msg box, Quicken also rounds the number appearing in the New Shares Issued box from .4452595 to .44526, which will never give me the correct number of shares. Any further thoughts?

Thanks, Bob Leavitt

Reply to
BobLeavitt

Manually change the number of shares and total cost in the resulting Shares Added transaction, letting Quicken compute the price/share.

Reply to
John Pollard

I should also mention that I can't do a stock split/name change, because my wife's account contains some of the same shares which were not eligible for conversion. When I change the name and symbol for the shares in my account, it changes the name and symbol of the shares in her account. When I deleted the transactions from her account, Quicken deleted the corresponding transactions from my account.

I should mention also that even though I put in the exact number of shares and no price, Quicken recorded a slightly different number of shares. Sure don't understand what's going on.

Reply to
BobLeavitt

I think you could overcome that by modifying the security name (to some intermediate name, same ticker) in all the transactions in the account that had the fewest transactions; so you wife and you would appear to own a different security. Then do the stock split/name change.

Well as you noted, Quicken did not (could not?) use the factor that you gave it; seems to me everything that follows, follows from that. Quicken has to have some limit on the number of decimal places it can handle; it appears as if you just hit it. Ultimately, since a corporate acquistion seems to consist of a remove shares and one or more add shares, I would think you could do it manually if all else fails.

Reply to
John Pollard

My version of Quicken is letting me have only one security name per ticker symbol

I did not give it a factor - I gave it the old number of shares and the new number of shares. I see that the correct number of new shares appears in the register but not in the reports.

Corporate Acquisition consists of 1 ShrsOut transaction and several ShrsIn transactions plus (apparently) something going on behind the scenes that retains certain historical information (acquistion dates of different lots and so forth) Because not too many ShrsIn transactions are involved, I think I will do the Corporate Acquisition again and then manually adjust the cost basis proportionately for each ShrsIn transaction and forget about the minor problem with the number of shares.

As a matter of info, the Corporate Acquisition also affects the shares in my wife's account, but in this case, I can delete the affected transactions in her account and everything is okay.

Thanks for taking the time to give this some consideration.

Reply to
BobLeavitt

Hi, Bob.

You have 3 separate problems.

  1. Is this a taxable conversion? Unless it qualifies under some specific section of the Internal Revenue Code, an exchange of shares for substantially non-identical shares is taxable, just like a sale. Report the sale/exchange, pay your tax, then record the "purchase" of the new shares. But Vanguard's tax lawyers probably already handled the technicalities for this (check their website or all those documents they sent you to be sure - or have your tax attorney/CPA check it), so let's assume that Problem 1 is taken care of and that Corporate Acquisition is the proper treatment in this case.

  1. Figure out what happened in the real world. Your 6,547.334 new (Admiral) shares have a total tax basis of 4,847.86, your original Vanguard basis. No matter which arithmetic steps you go through, you should end up with this answer - to the PENNY and to the .001 share.

  2. Your hardest problem may be figuring out how to enter this in Quicken. :>(

Quicken has always had trouble speaking the language of Corporate Acquisitions. Q2005 STILL asks for "Price per share for acquiring company (after completion of acquisition)" - and this is absolutely irrelevant to the basis calculation. And the wonderfully helpful (NOT!) Help file explains: "Enter the share price of the parent company after the acquisition." Whether the shares (old or new) sell for $1 or $1,000, before or after the deal, the new basis of the new shares will be the same.

Problem 2 is easy IF all those old shares were in a single lot - but they probably were not. If not, then you (or your accountant) have the unenviable job of going through the simple calculation dozens of times, once for each lot of old shares. Your AVERAGE basis for your new shares is $22.77 ($334,847.86 / 6,547.334). But the basis for any one share is probably different from the average. That .4452595 conversion factor is only a convenience in calculating the number of new shares PER LOT of old shares. Exampe: If your old shares included one lot of 100 Investor shares bought for $20 per share and another lot of 200 shares bought for $50 per share, then you would have received 44.526 shares from converting the

100-share lot and 89.052 Vanguard shares for the 200 Investor shares. You would need to allocate $2,000 over the 44.526 shares, giving a basis of $44.92 per share for that lot, and allocate $10,000 / 89.052 = $112.29 per share basis for the second lot. To check your answer, multiply 44.526 x $44.92 = $2,000.11, plus 89.052 x $112.29 = $9,999.65, for a total new basis of $11,999.76 (before rounding), equal to the original bases of $2,000 + $10,000 = $12,000.

As you can see, nowhere in those calculations was current market value of either old or new shares a factor. As John Pollard said, put in the old basis (to the penny) and the number of new shares (to the .001 share) and let Quicken calculate any other numbers that it thinks it needs.

An Excel spreadsheet can help you work out the lot-by-lot bases, but there's no good way to poke them into Quicken.

As I've mentioned here often, Bob, I've been retired for over a dozen years and these tax rules change often. Be sure to check with your own tax attorney/CPA for the current rules.

RC

Reply to
R. C. White

Whoops! I guess I'm out of practice with using a simple calculator. :>(

Make that $51.14 per share, not $22.77. And I hope the rest of that post was PERFECT!

RC

Reply to
R. C. White

Conversion to Admiral shares by Vanguard is not a taxable coveresion according to Vanguard!

Reply to
Jon Reinhardt

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