Store Store
Accounting
Taxes
Investing
Downloads
Resources

MERGER: MBNA (KRB) merges with Bank of America (BAC)

Issue:

How do I enter the MBNA (KRB) and Bank of America (BAC) merger?

Cause:

This merger is a cash plus stock reorganization, a type of transaction which has become more and more frequent in recent years.

Resolution:

All the information below is from the information available in the S4 filed by BAC with the SEC at: http://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipage=3605572&format=PDF.

For each share of KRB, you received 0.5009 shares of Bank of America common stock plus $4.125 in cash.

The instructions below work if you have purchased KRB in one block and have not had any reinvested dividends or additional purchases of the stock. If you have reinvested dividends or purchased additional blocks of stock, you'll need to calculate this for each and every block. To make this easier, please refer to Jim Thomas' excellent spreadsheet at http://home.comcast.net/~jimt075/BI/StockCashMerger.xls

First, if you have made any entries for this transaction in the Club Accounting software, you should delete them.

The total merger consideration is $27.241535 per KRB share. Subtract your KRB basis from that total consideration to calculate your gain. That is your total gain on the transaction, not your reportable gain. The reportable gain is the lesser of the cash received or the total gain. The type of gain is based on how long you held it - over one year is Long-Term, one year or less is Short-Term. You report it by going to Transactions, Dividend or Distribution, and then selecting either long term or short term capital gain as the type. Date that transaction 1/2/2006.

If your total gain is more than the cash received, you should skip the rest of this paragraph.
Now, we must account for the balance of cash received in excess of that reportable gain. You will enter that excess as a return of capital against the KRB stock. Enter it by going to Transactions, Dividend or Distribution: type = Return of Capital. Date that transaction 1/2/2006 also.

Now, we are ready to record the merger. Date this transaction one day later than the previous two, or 1/3/2006. Go to Transactions, Merger. The total number of BAC shares received will be 0.5009 times the number of KRB shares held. Show that you are receiving the full number of shares of BAC, including the fractional portion.Enter the Cash In Lieu received in the Cash Received section.

Finally, if the broker charged a reorganization fee, enter that on 1/4/2006 as a negative return of capital against BAC for the reorganization fee. Goto Transactions,Dividend or Distribution: Type Return of Capital. Be sure to enter it as a negative figure - that is with a minus sign.

For a step-by-step of this procedure, I recommend printing out this sheet and filling out the blanks.

Step 1) If you entered any part of this merger transaction, delete those transactions from the software.

Step 2) Determine your total merger consideration.

The total merger consideration is $27.241535 per KRB share.
Your total consideration is: your shares in KRB ________ * $27.241535 = ________________________

Step 3) Determine your gain.
Your total consideration (above) MINUS your KRB basis $________________ =
The total gain (not the reportable gain) _____________________

Step 4) Determine your reportable gain. Do not include cash in lieu of fractional shares in the CASH RECEIVED blank below.
Your reportable gain is either the cash received $_____________, or the total gain $______________, whichever is less.
Your reportable gain is $________________

Step 5) Determine the type of gain.
* If the stock has been held over 1 year, it is a Long-Term Capital Gain (LTCG)
* If the stock has been held one year or less, it is a Short-Term Capital Gain (STCG)

Step 6) In the software, enter the Reportable Gain
a) Go to TRANSACTIONS > DIVIDEND OR DISTRIBUTION
b) Set Transaction Date to 1/2/2006
c) Set Transaction Type to Dividend or Distribution
d) Select your Cash Account.
e) In the Amount field, enter the Reportable Gain (Step 4, above)
f) Set the Type to Short-Term or Long-Term Capital Gain.
g) Set the Security to KRB
h) Click OK

Step 7) If the reportable gain is more than or equal to the cash received, skip this step and step 8.
Determine the amount of cash received in excess of the reportable gain.
Your cash received $__________________ MINUS your reportable gain (from Step 4) $________________________ = $_______________________________. This amount will be entered as a Return of Capital in Step 8, below.

Step 8) Enter the cash received in excess of the reportable gain as a Return of Capital.
a) Go to TRANSACTIONS > DIVIDEND OR DISTRIBUTION
b) Set Transaction Date to 1/2/2006
c) Set Transaction Type to Dividend or Distribution
d) Select your Cash Account.
e) In the Amount field, enter the balance of cash received in excess of the reportable gain (Step 7, above)
f) Set the Type to Return of Capital
g) Set the Security to KRB
h) Click OK

Step 9) Record the Merger

a) Compute the number of BAC shares received.
The number of KRB shares ____________ times 0.5009 = ____________, total number of BAC shares received, including fractional shares.
b) At the top of the page, select TRANSACTIONS > MERGER
c) Set Transaction Date to 1/3/2006.
d) Transaction Type will already be set as MERGER.
e) Select the appropriate Cash Account - ie Broker, checking, etc.
f) Select MBNA under Select Old Security.
g) Set Old Security Price per share to zero (0).
h) Under CASH RECEIVED, enter the cash received IN LIEU OF FRACTIONAL SHARES, if any. Do not enter the ENTIRE amount of cash received.

Note: The cash received from the sale of a fractional share should be separate on your broker statement from the cash received. This "cash in lieu" comes from the fact that no fractional shares were issued in this transaction, and, thus, cash was paid instead. The program will sell the fractional portion of the total BAC shares for this amount.

i) Enter Bank of America for New Security. [If Bank of America is not available select NEW SECURITY and enter the data.]
j) In SHARES RECEIVED, enter ____________ from step 9a, in the line with BAC.
k) Enter $46.15 for the price per share.
l) Click OK to complete the merger transaction.

Step 10 - Optional) If there is a reorganization fee, that gets entered as a negative Return of Capital against Bank of America

a) Go to TRANSACTIONS > DIVIDEND OR DISTRIBUTION
b) Set Transaction Date to 1/4/2006
c) Set Transaction Type to Dividend or Distribution
d) Select your Cash Account.
e) In the Amount field, enter the Reorganization Fee as a negative number, using the minus sign.
f) Set the Type to Return of Capital
g) Set the Security to Bank of America
h) Click OK



Your transaction is complete!



 
  
About    Press    Management    Privacy Policy    Terms of Service    Contact

copyright 1989 - ICLUBcentral Inc. or its affiliates