Merger - First Security/Wells Fargo
This is part of a continuing series on entering Spin-Offs and Mergers in bivio and NCA.
On October 25, 2000 Wells Fargo & Company [WFC] and First Security Corporation [FSCO] completed a merger where shareholders of FSCO received .355 shares of WFC for each share of FSCO owned. This was a tax-free reorganization. Therefore, no taxable income should be recognized, except for the sale of any fractional shares received in the merger. A press release on the merger can be found at
To enter the transaction in bivio, go to Accounting>Investments and click on First Security. After the transactions for that company have been displayed, click on the Merger icon. In the box asking for Acquiring Ticker, enter WFC. For transaction date, enter 10/25/2000. In the Shares box, enter the total number of Wells Fargo shares received, including any fractional shares. In the Cash Received box, enter any funds received from your broker for the sale of fractional shares. Select the account in which you wish this transaction to be recorded - probably Broker. Enter a remark, if you like, hit OK, and you are done. The merger has been recorded. Your new shares of WFC will have the correct cost basis, and the sale of any fractional shares has been recorded.
To enter the transaction in NCA, go to Securities>Enter New Transaction>Merger. In the Old Security box, select First Security. For the date, enter 10/25/00. In the new securities box, if you already own Wells Fargo, select that company. If not, select Add a New Company and fill out the requested data for Wells Fargo. Enter the shares of Wells Fargo received, including fractional shares. You will have to enter a price per share for the Wells Fargo stock, even though it is not used in the calculation. I suggest using the closing price on 10/25/00 of 42.4375.
Do not enter anything in the Cash Received box. As reported in previous columns, and now confirmed by the authors of the NCA software, there is a glitch in that programs which crops up at times in recording spin-offs. I have not experienced the glitch in recording mergers, but when there is a perfectly save work-around, why take a chance. We will enter the sale of the fractional shares as a separate transaction. Enter a remark, and click OK.
Now we will enter the sale of any fractional shares received. Go to Securities>New Transaction>Sell. In the Security box, select Wells Fargo. For the date, enter 10/25/00. Enter the amount of cash received for the fractional shares, and the number of fractional shares to be sold. After hitting OK, you will have a new screen, in which you can select the lot from which these fractional shares came. If you had more than one lot of purchases, you will not be able to identify the lot from which the fractional shares came, so you have to assume that they were part of the earliest lot purchased. Accordingly select the oldest lot for the sale.
Entering the sale of the fractional share in NCA separately from the merger has another benefit in addition to avoiding the glitch in the software. You will be able to record the cost of the sale of the fractional sale correctly. If you had entered that amount for fractional shares on the merger form, the NCA software would allocate the cost of these shares using the average cost of all shares on hand. This is directly in conflict with IRS regulations which prohibit using cost averaging for securities that are not mutual funds. Admittedly, the amounts involved are not large, and would probably never be questioned, but alert readers have asked us why NCA treats sales of fractional shares differently from bivio. For further information on this difference and the aforementioned glitch see...........
Glitches, Fractional Shares and Differences from NCA Results
As always, feel free to address any questions on this to the geeks of trez_talk.
Rip West
Saint Paul, MN