Software Tips & Tricks - FAS
Vodafone Divestiture of Verizon
Vodafone sold its interest in Verizon and on February 24, 2014, distributed cash and shares of Verizon stock to its shareholders. The total distribution of Verizon stock and cash is considered income with no reduction in the basis of Vodafone. The original Vodafone stock was then exchanged for a new issue of Vodafone Group PLC
Here's how to post this transaction in OTEA's Fiduciary Accounting Program:
1. Record the receipt of Verizon by posting a spin-off of Verizon
from the original Vodafone holding.
(a) Use the Inventory method for Input Style. When entering the shares of Verizon received, be sure to include any fractional share. We'll sell the fractional share to record cash received in lieu of it. Enter zero as the Inventory Value assigned to Verizon so that the basis of Vodafone is not reduced by the value that is to be assigned to Verizon.
(b) Use the Adjustment to Inventory function to increase the basis of Verizon to its fair market value on date of distribution. This will record a gain on the transaction, which will be reflected on your schedule of gains and losses. It will also establish a basis for Verizon.
(c) Sell the fractional share of Verizon to record the receipt of cash in lieu of fractional share.
2. Record the cash distribution of the transaction.
(a) Add an Original Asset/Subsequent Receipt for the cash portion of the transaction. Use the Asset Name to describe the transaction, e.g. cash paid to Vodafone shareholders upon divestiture of its holdings in Verizon Communications, Inc. The asset type should be Cash and the Inventory Value will be the cash received. Be sure to enter the date the cash was received in the Received Date box. This transaction will appear on your schedule of assets received as a subsequent receipt.
(b) Transfer the cash from the account created in step 2(a) above to the account into which these proceeds were actually deposited. This transfer will not appear on your accounting schedules. The result of the transfer will be reflected in your cash balances.
3. Exchange the old shares of Vodafone for the new shares.
Use the Inventory method under Input Style and enter the entire basis of the old shares as the basis of the new shares. Be sure to include any fractional share so you can sell it to record the cash received in lieu of the fractional share.
Once you've completed the above entries, the end result should be:
(1) Shares of Vodafone NEW with the same basis as the shares of Vodafone that were surrendered.
(2) Shares of Verizon with a basis equal to Verizon's fair market value on the date it was distributed by Vodafone.
(3) An increase in your cash account equal to the cash received in the transaction.
Note that although this is all a single transaction, the shares of Verizon stock, the cash received as part of the divestiture, the cash in lieu of fractional shares and the exchange of Vodafone for Vodafone NEW may all be reflected on your brokerage statement on different dates.
