Making the Investment Club Treasurer's Job Easy...

Making the Investment Club Treasurer's Job Easy... by Doug Gerlach President, ICLUBcentral Inc. September 2011 1 } Use Questions box in GoToWebinar applet to type questions. 2 Copyright ICLUBcentral Inc., September 2011 Page 1

} Question: What is cash-in-lieu and what do I do with it? 3 } Question: What is cash-in-lieu and what do I do with it? } Answer: This is cash received instead of stock in many mergers, splits, spinoffs. Brokers won t handle fractional shares of stock. Instead, broker will give you cash instead of fractions of shares. myiclub & Club Accounting 3 handle cash in lieu as part of these transactions. For tax purposes, counts as sale of fractional shares. 4 Copyright ICLUBcentral Inc., September 2011 Page 2

} Question: Where do I find the information needed in order to enter mergers, spinoffs, and other transactions in my club s books? 5 } Question: Where do I find the information needed in order to enter mergers, spinoffs, and other transactions in my club s books? } Answer: Check the company s website in the Investor Relations section. The ICLUB.com website also has information on non-standard transactions. 6 Copyright ICLUBcentral Inc., September 2011 Page 3

} What is it? Company issues additional shares to current owners. } What do you need to know? Payable date. Split ratio. } What is affected? Original cost basis & current price are adjusted. Total return is NOT affected. 7 } Securities > Stock Split 8 Copyright ICLUBcentral Inc., September 2011 Page 4

9 10 Copyright ICLUBcentral Inc., September 2011 Page 5

11 } What is it? Company reduces number of shares of current owners. } What do you need to know? Payable date. Split ratio. } What is affected? Original cost basis & current price per share are adjusted. Total return is NOT affected. 12 Copyright ICLUBcentral Inc., September 2011 Page 6

} Securities > Stock Split 13 14 Copyright ICLUBcentral Inc., September 2011 Page 7

15 16 Copyright ICLUBcentral Inc., September 2011 Page 8

} What is it? Company issues additional shares to current owners. } What do you need to know? Payable date. Amount of dividend (typically percentage). } What is affected? Original per-share cost basis & current price are adjusted. Total return is NOT affected. 17 } Securities > Stock Split 18 Copyright ICLUBcentral Inc., September 2011 Page 9

19 1.8122% Stock Dividend is recorded as 1.018122-to-1 Stock Split. 20 Copyright ICLUBcentral Inc., September 2011 Page 10

21 } What is it? Company issues check to owners in legal settlement. } What do you need to know? Payment date. Amount of settlement. } What is affected? Treated as Return of Capital, so stock s original cost basis is reduced. 22 Copyright ICLUBcentral Inc., September 2011 Page 11

} Securities > Cash Dividend 23 ABCD Type: Return of Capital 24 Copyright ICLUBcentral Inc., September 2011 Page 12

ABCD ABCD Company 25 } Question: How are litigation settlements handled if stock is no longer owned by the club? 26 Copyright ICLUBcentral Inc., September 2011 Page 13

} Question: How are litigation settlements handled if stock is no longer owned by the club? } Answer: Enter as a long-term capital gains. In Club Accounting 3: Reactivate security first. 27 } Securities > Cash Dividend 28 Copyright ICLUBcentral Inc., September 2011 Page 14

XYZ* Type: Long-term Capital Gain 29 XYZ XYZ Company 30 Copyright ICLUBcentral Inc., September 2011 Page 15

} Question: How are litigation settlements handled for partners who are no longer members of the club? They would have been members when the club owned the share under settlement. 31 } Question: How are litigation settlements handled for partners no longer members of the club? They were members when the club owned the stock under settlement. } Answer: While the partner may have been a member in the past, clubs work on a cash accounting basis, so income is recognized only when received. Former members are not entitled to any part of the settlement. 32 Copyright ICLUBcentral Inc., September 2011 Page 16

} What is it? Two companies merge. } What do you need to know? Ticker symbols of two companies. Effective date. # of shares received. Price per share on effective date. Any cash received. 33 } Securities > Merger of Securities 34 Copyright ICLUBcentral Inc., September 2011 Page 17

35 36 Copyright ICLUBcentral Inc., September 2011 Page 18

37 } Question: Are there any tax consequences to mergers? 38 Copyright ICLUBcentral Inc., September 2011 Page 19

} Question: Are there any tax consequences to mergers? } Answer: Most mergers are nontaxable transactions. Occasionally, taxable mergers do occur, at least for owners of one of the companies. Generally entered as two transactions sell and buy instead of as a merger. See ICLUB.com Support site for help. 39 } What is it? Company spins off part of company into separate company. } What do you need to know? Ticker symbols of two companies. Effective date. Remaining basis percentage. Price per Share on Effective Date Shares and any cash received. } What is affected? Part of original cost basis is assigned to new company 40 Copyright ICLUBcentral Inc., September 2011 Page 20

} Securities > Spinoff 41 42 Copyright ICLUBcentral Inc., September 2011 Page 21

43 44 Copyright ICLUBcentral Inc., September 2011 Page 22

} Question: We received a small number of shares in a spinoff. If we sold them, the brokerage commission would nearly wipe out the entire value! What should we do? 45 } Question: We received a small number of shares in a spinoff. If we sold them, the brokerage commission would nearly wipe out the entire value! What should we do? } Answer: Sell! They are a distraction. They will never contribute to club s total return. 46 Copyright ICLUBcentral Inc., September 2011 Page 23

} What is it? Another company buys company you own. } What do you need to know? Effective date. Cash received. } What is affected? Treat as normal sale of stock. 47 } Use Questions box in GoToWebinar applet to type questions. 48 Copyright ICLUBcentral Inc., September 2011 Page 24

} Question: Can the software be changed to deduct foreign tax from your cash balance as well as deducting from the security? 49 } Question: Can the software deduct foreign tax withholding from cash balance as well as from the security? } Answer: Dividends paid to US residents on foreign companies have taxes withheld from gross dividend amount. } Full dividend is taxable in US, partners get US tax credit for foreign taxes withheld. } Net amount of dividend (gross tax) is received in cash by club. } Treatment in myiclub emphasizes the two sides of the transaction. 50 Copyright ICLUBcentral Inc., September 2011 Page 25

} Question: We own a stock that recently had a spinoff and a reverse split. How do we enter it in the books? 51 } Question: We own a stock that recently had a spinoff and a reverse split. How do we enter it in the books? } Answer: The ICLUB.com web site Club Accounting Support section has instructions for many unusual mergers, splits, and spinoffs. } If not found there, contact ICLUBcentral Customer Support. 52 Copyright ICLUBcentral Inc., September 2011 Page 26

http://www.iclub.com/support/kb/default.asp?page=transactions 53 54 Copyright ICLUBcentral Inc., September 2011 Page 27

} Jim Thomas } Russell Malley } Investment Club Accounting Concepts by the BetterInvesting Puget Sound Chapter 55 myiclub.com www.myiclub.com ICLUBcentral Inc. www.iclub.com Write me: gerlach@iclub.com 56 Copyright ICLUBcentral Inc., September 2011 Page 28