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Author
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Topic: convert bonds to com stock
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bhj
Member
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posted 09-14-2000 02:24 PM
 
What is the best way to record a transaction in which bonds have been converted to common stock? In the past I have simply moved the account in the chart of accounts from one category to another, then changed the format (description) of the asset from "bonds" to "Common/Preferred Stock" in the Asset and Liability Info screen, and finally changed the number of shares to reflect the number of shares received upon conversion. This is probably the worst way to record this transaction as there is absolutely no audit trail. Thanks for your help...
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Renee
Member
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posted 09-18-2000 05:25 PM
You're right; the method you describe does not leave an audit trail. Here's a better method.
- Set up a new account in the Chart of Accounts in a cash-type category, such as Checking, Savings, Money Market, Brokerage Accounts, etc.
Call the account something like BROKERAGE SUSPENSE or something similar. This will be an "in-and-out" account that will always end up with a zero balance. - Go to Asset & Liability Information for the bond account (i.e. the security that was converted). Make a note of the following:
- Acquisition date
- Cost basis
- Go to Transaction Activity for the new BROKERAGE SUSPENSE account for the month in which the bond-to-stock conversion took place.
- Enter a Sale transaction as if you received cash exactly equal to the cost basis of the bonds.
- Enter a Purchase transaction as if you purchased the new stock for exactly the same amount. When you get to the Multiple Distribution screen for the purchase, be sure to enter as the Date Acquired the original acquisition date of the bonds. Enter the number of shares of stock you received, not the number of bonds you converted.
- Enter the transactions as Status = Cleared since there is no account to reconcile to.
- Make sure that the BROKERAGE SUSPENSE account ends up with a balance of zero.
- Go to Accounts | Tax Code Changes and select the bond account (i.e. the security that was converted). Change the tax code to "No Tax Effect."
Now your old bond account is zero, you have a new common stock account that properly reflects its acquisition date and basis, and an audit trail of how it got there. ------------------
Renée Trudeau
Financial Navigator Service Provider
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bhj
Member
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posted 09-21-2000 08:11 AM
It seems that this would also be the best way to record mergers/acquisitions involving the exchange of securities, do you agree?
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Renee
Member
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posted 09-21-2000 01:30 PM
Absolutely. Any time you have an exchange of one security for another, you are effectively "selling" one and "buying" the other.------------------
Renée Trudeau
Financial Navigator Service Provider
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margaret miles
Member
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posted 09-21-2000 01:57 PM
Mergers and acquisitions frequently involve "cash in lieu." If you want a complete audit trail to schedule D, I recommend the following:1) In the brokerage account where the transaction occurs, first sell the fractional share of the original asset. 2) Then proceed as above. 3) Alternatively, record the rest of the transaction in the brokerage account. The sell transaction and the buy transaction together will equal zero in the brokerage account. This allows the transaction to be recorded in the brokerage account where the activity took place.
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m miles
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