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MERGER: Xerox and ACS
Issue: How do I enter the Xerox and ACS merger?
Cause: Xerox completed its merger with ACS on 2/5/2010 for cash and Xerox stock.
The SEC filing for this merger can be found at through the Xerox web site at:
http://phx.corporate-ir.net/phoenix.zhtml?c=104414&p=irol-sec&seccat01enhanced.1_rs=11&seccat01enhanced.1_rc=10
Choose the S-4 filing of 10/23/2009.
Resolution:
This merger is a cash plus stock reorganization, which are becoming more and more frequent in recent years. All the information below is from the information available from the S-4 filed with the SEC.
First, if you have made any entries for this transaction in the Club Accounting software, you should delete them.
To record this merger will require multiple entries in the accounting software. The basic outline of these entries is given below:
- Enter a large Return of capital transaction to have the program calculate the capital gain reportable for this merger.
- Write down the capital gains, both long-term (LTCG) and short-term (STCG).
- Delete the large Return of capital entry.
- Enter capital gain distributions for the LTCG and STCG.
- Enter a smaller Return of capital for the remainder of the cash received.
- Enter the actual merger transaction
The capital gain realized is limited to the actual cash received so some clubs may need to adjust the capital gain amounts before entering the capital gain distributions. Instructions for doing so are included. The total merger consideration is $60.40 per ACS share. Your capital gain will be based on this total consideration with a limit that the total capital gain can not be more than the total cash received.
1. Calculate the capital gain.
The total merger consideration is $60.40 per ACS share. This is $18.60 in cash and 41.80 in Xerox shares. Calculate the total value received for your ACS shares by multiplying 60.40 by the total shares of ACS owned.
Total Proceeds = [60.40 x (# of ACS shares owned)] – (Reorganization fee)
Enter the total proceeds amount in the dividend entry screen. Change the “type” to Return of capital. Date the transaction 2/5/2009. The security is ACS. Save the transaction.
The program will change some of the Return of capital, if appropriate, to LTCG and STCG.
Look at your transactions history and WRITE DOWN the amount for LTCG and STCG.
After you have recorded these amounts, DELETE the Return of capital transaction. Although the LTCG and STCG entries were generated by the Return of capital entry you may need to delete them separately in the program.
Next, compare the sum of the capital gains to the total cash received, excluding cash for fractional shares.
The total cash received should be [18.60 x (# of ACS shares held)] – (Reorganization fee).
If your total capital gains are less than or equal to the total cash received, then skip to the Accounting for Cash Received section, .
If your total capital gains are greater than the total cash received, continue in this section to adjust your capital gains so they are equal to your total cash received.
Since the structuring of this merger limits your capital gains to the cash received you need to adjust your gains downward. This will be done by calculating the total decrease needed and the apportioning the decrease to the LTCG and STCG according to each type’s share of the total calculated capital gains. Here are the items that need to be calculated first.
Total Capital gain = Total CG = LTCG + STCG
Total Decrease = (LTCG + STCG) – (Total cash received)
% LTCG = LTCG/ (LTCG + STCG)
% STCG = STCG/(LTCG + STCG)
With these calculated you can calculate the final LTCG and final STCG.
Final LTCG = LTCG – [(Total Decrease) x (% LTCG)]
Final STCG = STCG – [(Total Decrease) x (% STCG)]
If you have done the calculations correctly, (Final LTCG + Final STCG) = Total cash received.
If , (Final LTCG + Final STCG) = Total cash received, go to the next section, Accounting for Cash Received.
2. Accounting for Cash Received
All of the following entries use the cash dividend screen, in CA3 this is Transactions > Cash Dividend or Distribution, and online at Accounting > Cash Dividends.
Date these transactions 2/5/2010.
The security should be ACS
Change the “type” field to Long-term capital gain.
Amount should be your LTCG as calculated above.
Next repeat the process for your short-term capital gain.
Change the “type” field to Short-term capital gain.
Amount should be your STCG as calculated above.
If you had to adjust you capital gain, the amount of LTCG and STCG in these entries will be the actual LTCG and actual STCG as adjusted above.
Finally, enter a return of capital entry.
Change the “type” field to Return of capital.
Amount should be: (Total Cash received) – ( LTCG + STCG)
If your LTCG + STCG = Total Cash Received, no return of capital entry is needed.
Continue to step 3, The Merger.
3. The Merger
Go to Transactions > Merger or Accounting > Securities > Record merger of securities depending on the version of the software being used. If you are unfamiliar with merger transactions you can get help at this url: http://www.iclub.com/support/kb/default.asp?page=normal_merger
Here is the information you need to complete the merger.
Date: 2/6/2010
Old Security or Merging Company: ACS
Price per share of old Security / ACS: 59.64
Cash received: See your broker statement for cash-in-lieu
New Security: Xerox (XRX)
Shares received : 4.935 x (#of ACS shares owned)
(Remember to include fractional shares.)
Save the transaction and this is finally done.
A worksheet is provided below to record the items that need to be calculated.
A. Total Proceeds received.
60.40 x (# of ACS shares) = ____________________________
B. Total cash received.
[18.60 x (# of ACS shares)] – ( Reorganization fee, if any) = ________________
Large Return of Capital (ROC) entry amount is equal to A.
C. LTCG = _____________________ (see transaction list after large ROC entry, record here)
D. STCG = ____________________ (see transaction list after large ROC entry, record here)
E. LTCG + STCG = __________________ . Is this greater than B, Total cash received?
F. Return of Capital amount = (Total Cash Received) – (LTCG + STCG) = ______________
This is if LTCG + STCG is less than Total Cash received.
Capital gain adjustment, if LTCG + STCG is greater than Total Cash received.
G. Total Decrease = (LTCG + STCG) – (Total Cash Received) = __________________
H. % LTCG = (LTCG)/ (LTCG + STCG) = _________________
I. % STCG = (STCG)/ (LTCG + STCG) = _________________
J. Actual LTCG = LTCG – [(Total decrease) x (%LTCG)] = ________________________.
This is the amount to enter if LTCG + STCG is greater than Total Cash received.
K. Actual STCG = STCG – [(Total decrease) x (%STCG)] = ________________________.
This is the amount to enter if LTCG + STCG is greater than Total Cash received.
L. Shares of Xerox Received = 4.935 x (# of ACS shares owned) = _________________.
(For the merger transaction)
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