Topic: Lucent/Avaya Spin Off
Topic: Lucent/Avaya Spin Off
This is part of a continuing series on entering Spin Offs and Mergers in bivio and NCA.
Lucent [LU] spun off Avaya as of 10/1/2000. Lucent shareholders were to receive 1 share of Avaya for each 12 shares of Lucent owned. The tax basis for the Lucent shares after the spin off was to be 94.524% of the basis before the spin off. In NCA parlance, Rem. Basis equals .94524. This percentage is computed by the companies involved based on certain average prices before the spin off date. Lucent closed at $31 on the day of the spin off, and Avaya closed at $16.1875.
We will take an actual case to illustrate how to enter this transaction, both in the bivio and NCA software programs.
Assume that we own 1000 shares of Lucent, with a total cost of $7,300.00.
To record the transaction in bivio.............................
Go to Accounting>Investments. Click on Lucent. When the Lucent screen comes up, click on the Spin Off Icon. For the ticker symbol for Avaya, enter AV. For Transaction Date, enter 10/1/2000.For the number of shares of Avaya issued, enter 83.33333 [it is very important to include any fractional shares with the number of shares received of the new company.] For Remaining Basis Percentage, enter 94.524 [do not enter this as .9607 and do not enter a percent sign.] Enter the amount of cash received in lieu of the fractional shares. Enter the account that this cash went to, probably Broker. You can include a remark, and then hit OK. Your transaction has been entered and the fractional share has been sold for the amount that you indicated.
To record the transaction with NCA software.............
Go to Securities>Enter New Transaction>Spin Off. For Spin Off Company, select Avaya [If Avaya does not appear in the drop down box, select New Company, and enter all the data for Avaya. After you are through, be sure that Avaya is listed as the spin off security on the Spin Off form]. Enter the shares received, including any fractional shares. In our example, we would enter 83.33333. For price per share, enter 16.1875. Click on the Date box, and enter 10/01/00. For Parent Company, select Lucent. In Rem. Basis Fraction, enter .94524.Hit Tab, and the price for the parent company, after the spin off, will appear. [Note - you could have left the Rem. Basis Fraction box blank, and entered the price for the parent company. This would calculate the Rem. Basis Fraction. I always advocate entering the Rem. Basis Fraction, as published by the company, since you can not always be sure which price - closing, average, etc. they are using for the calculation.] Do not enter anything for cash received. NCA has a glitch, which records the sale of a fractional share on the basis of the price that you have entered for the spin off company, rather than the actual cash received. We will enter the sale of the fractional share later. Enter a remark, if you wish, and click on OK.
Now, we must enter the sale of the fractional share in the NCA software. Go to Securities|Enter New Transaction|Sell. For security, select Avaya. For date, select 10/01/00. Select the account where the cash was received [probably Broker]. For shares, enter the fractional amount [in our example .33333]. For Sales Price, enter the amount of cash that you received in lieu of fractional share. Enter a remark, if desired, and click on OK. You have now entered the transaction in the NCA software.
The result of all of this is that we have allocated a portion of our original tax basis in Lucent to the shares of Avaya received. In addition, we have recorded the sale [and resultant gain or loss] for the portion of the Avaya shares received that were less than one. The holding period for the Avaya shares will be the same as the holding period for the Lucent shares.
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