Record a merger for stock and cash

[jnewton]

Mark:
How do you record an acquisition for stock and cash? The cash portion is taxable as capital gains and is partially offset by the basis. The stock portion is non taxable and the remaining basis is carried forward. I know to do a transfer for the stock, and then manually adjusted teh basis but I don't know how to apply the cash portion and cap gain calculation.

Thanks

[Mark]

Hi jnewton,

In many cases these are a stock split, at some ratio, and then a sell of the partial shares for cash. For example, if you owned 11 shares, and it did a 2 for 1 merger, you would record a 2 for 1 split, and then sell the 0.5 fractional share. You'd be left with 5 shares, and sell of 0.5 shares. The cost basis of that 0.5 sold share would be determined by how much you originally paid for the shares. If this doesn't seem to apply to your situation, please try to provide some more specifics on what happened.

[jnewton]

Although you can probably back into it this way, it is not really the situation I was talking about. Specificly Merck (MRK) purchased Schering Plough (SGP) in Nov 09 for about $29.50/per share. The purchase was $10.50/share cash and .58 shares of MRK. The cash portion is taxable, the stock portion is not. Basis allocation is 42% to cash and 58% to the stock. The cash/stock ratio is not the same as the basis/tax ratio so it's two different percentage calculations. Any thoughts?

[Mark]

Hi jnewton,

There are probably a couple of ways to record this, but here is a suggestion:

1) Record a transfer of 0.58 of the shares from SGP to MRK for 58% of the basis/value.

2) Record a sell of 0.42 of the SGP shares for $10.50/share.

[jnewton]

I believe that would work. Thanks