You must use a Return of Capital transaction (which is detailed below).

You must NOT try to do this in the General Journal! If you do so, cost basis will not be properly updated. Cost basis is only updated when using a cash-type journal.

For this example, let's assume the following. Note that you must have all of this information to properly record this type of transaction.

• Prior to the spinoff, you owned 100 shares of BIG TELCO with a basis of $1,500, and an original purchase date of 1/15/97.
  
• On 7/15/00, BIG TELCO spun off 13.25 shares of TELCO SPINOFF.
  
• The basis of the 13.25 TELCO SPINOFF shares will be $165.63, or $12.50 per share.
  
• You received $7.95 as "cash in lieu" of the fractional 0.25 share.
  
• The spinoff will reduce the basis of BIG TELCO, but will leave the number of shares unchanged.
  

Here are the steps to use to record this:

1. Create a new account in the Chart of Accounts for the new asset TELCO SPINOFF, being sure to place it in a Marketable Securities category.

2. Go to Transaction Activity for the month in which the spinoff occurred. Very Important: Select a cash-type account. Usually it is best to record these transactions in your brokerage cash account.

3. Enter a sale transaction as follows:
   
   
   
   • Chk # - Deposit
     
   • Date - Date of spinoff
     
   • Payee/Payor - Big Telco/Spinoff (it's best to enter this as a "memo payee")
     
   • Status - Outstanding (if you plan on checking this off on your brokerage statement; otherwise use Cleared)
     
   • Deposit Amount - The amount that will be allocated to the new company's basis.
     
   • Account - BIG TELCO (i.e. the asset account for the company doing the spinning off).
     
   • When FN asks you, "Sold Investment?" you MUST answer "Yes."
     
   • At the Multiple Distribution screen, enter the following information:
     -- Date sold - Date of spinoff
     -- Quantity sold - enter 0 (very important!)
     
   • When FN asks, "Return of Capital?" you MUST answer "Yes."
     
   • FN removes the spun-off amount from the old company's basis but does NOT change the number of shares.
     
   
   
4. Enter the receipt of the new shares as follows (using the same cash journal you used to enter the "sale" transaction above):
   
   
   
   • Chk # - Charge
     
   • Date - Date of spinoff
     
   • Payee/Payor - Big Telco/Spinoff (it's best to enter this as a "memo payee")
     
   • Status - Outstanding (if you plan on checking this off on your brokerage statement; otherwise use Cleared)
     
   • Charge Amount - The amount that will be allocated to the new company's basis.
     
   • Account - TELCO SPINOFF (i.e. the asset account for the NEW company).
     
   • When FN asks you, "Acquire Investment?" you MUST answer "Yes."
     
   • At the Multiple Distribution screen, enter the following information:
     --Date acquired - Date of spinoff or original purchase date of old company; you'll need to check which one to use.
     --Quantity - enter the entire amount received including the fractional shares - in this example, 13.25 (very important!)
     
   • Complete the "purchase" as you normally would.
     
   
   
5. Enter the receipt of $7.95 for cash in lieu of the fractional 0.25 share as follows (keep in mind that you have effectively sold that tiny little piece of your investment, whether you wanted to or not!):
   
   
   
   • Chk # - Deposit
     
   • Date - Date you received the cash in lieu
     
   • Payee/Payor - Big Telco/Spinoff (it's best to enter this as a "memo payee")
     
   • Status - Outstanding (if you plan on checking this off on your brokerage statement; otherwise use Cleared)
     
   • Deposit Amount - The amount of cash you received (typically a small amount).
     
   • Account – TELCO SPINOFF (i.e. the asset account for the NEW company).
     
   • When FN asks you, "Sold Investment?" you MUST answer "Yes."
     
   • At the Multiple Distribution screen, enter the following information:
     -- Date sold - Date of spinoff
     -- Quantity sold - enter the number of fractional shares, a number less than 1 (very important!)
     
   • When FN asks, "Partial Sale?" you MUST answer "Yes."
     
   
   

------------------
Renée Trudeau
Financial Navigator Service Provider

In essence, the report acts as a general ledger snapshot, complete with memo description and both sides of the entry. I find this report particularly useful in reconciling schedule D proceeds.

I use a memo payee for all security transactions other than income. For example, General Motors/Purchase, IBM/Sale, Hulett Packard/Stock Split would all be memo payees. PG&E/Dividends would be a regular payee.

My rationale is that the income transactions are recurring in nature, while the asset transactions are usually one-time in nature (and there may be dozens of these transactions every year). Why add dozens of payees to your list if you're only going to use each of them once? Larger payee lists are slower to load and are generally quite cumbersome.

Specifically in the case of a stock spin off, you need to use the payee twice (once to record the "sale", reducing the 1st company's basis, and again to record the "purchase" of the new company's shares). If you recorded the first transaction with a regular payee (i.e. not a memo) then the second transaction would be very confusing. FN would remember the 1st transaction
as a "sale" so the system would try to enter the second transaction as a "sale" (deposit) as well when you really need it to be a "purchase" (charge).

Of course I realize you can work around this in several different ways but that would be very confusing to many users. Suggesting that the user make this a memo payee alleviated that confusion.

Note that the names of memo payees show up on all reports except the "summary by payee." I use the Transactions by Account report (for the asset account in question) in the situation you describe, and I believe it provides all the necessary information.

The only report for memo payees is a report that gives all activity for memo payees. This includes all the updated pricing activity. This report is useless for us.

We have large portfolios that are actively traded by different money managers. It is impossible to know in advance how frequently a security will be traded. It is difficult to review data input for trades in the same securities, especially if multiple asset accounts are used.

Unintentional consequences from security activity occurs with multiple money managers.
An example are wash sales not intended by a single money manager but accidental because of multiple money managers traded in the same security. It is much easier to trace what happened by the payee report.

Finally, you can not use the "drill down" feature of FN for memo payees.

In summary, I don't like to give up the ability to review security transactions by payee.

1) The Portfolio Activity report will show all trades for the securities selected using the account qualifier.

2) The Schedule D report can be in order by account names to show all sales.

3) If the account names are in a similar form then the account qualifer can be specified for the beginning part of the account name. For example all securites are in the form IBM xxxx/xxx. Use the account qualifier IBM*/* to select only those accounts. Use this with the Portfolio Activity report, Transaction by Account for All Accounts, Detail Trial Balance, etc.