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RIGHTS ISSUED: Precision Drilling Trust
Issue:
How do I enter the rights issued by Precision Drilling Trust?
Cause:
On May 5, 2009 Precision Drilling issued one right for each unit held in the Trust. Seven rights give the holder of those rights the ability to purchase one unit of the trust for $3.00 per unit. The SEC filing regarding this rights distribution can be found at the following web address:
http://www.sec.gov/Archives/edgar/data/1013605/000095012909001393/h66553fv7.htm#107
This is the Form F-7 filing.
Resolution:
How to enter this transaction depends on what was done with the rights. There are three scenarios:
1) the rights were allowed to expire with no action taken.
2) the rights were sold to a third party.
3) the rights were exercised.
Scenarios 2 and 3 will require a spinoff transaction before the sell or buy transaction can be processed.
The Rights Were Allowed to Expire
If the rights were allowed to expire, then there is no need to enter anything. The original cost basis and number of shares of Precision Drilling remain the same as they were before the rights offering.
If the Rights Were Sold -OR- Exercised
If the Rights were Sold -OR- Exercised, you must first enter a spinoff transaction to account for receiving the rights. Here is the information needed to enter this spinoff.
If you are unfamiliar with normal spinoff transactions, help can be found at this support web page: http://www.iclub.com/support/kb/default.asp?page=normal_spinoff.
First enter the Precision Drilling rights as a new security. The ticker symbol was PDS.RI. This can also be done inside the spinoff entry screen.
Transaction Date: 5/5/2009
Parent Security: Precision Drilling Trust (PDS)
Remaining Basis percentage: 90.5%
Spinoff Security: Precision Drilling Sights ( PDS.RI)
Shares Received: This should be exactly the same as units of PDS owned
Price per Share: 0.52
The Rights Were Sold
If you sold the rights, enter this as a normal sale after entering the spinoff transaction from above. Use the date of the actual sale and total proceeds received from the sale.
The Rights Were Exercised
First generate a Security Transaction History report (Individual Security Ledger for OCA) for the Precision Drilling Rights security. Write down the total cost amount in this report.
The day before the buy for new shares acquired by exercising your rights, enter a sale of the rights for exactly the amount of the cost basis of the rights received. Have the proceeds go into the Suspense account.
Enter a buy transaction of the new shares of PDS as a normal buy.
Add the cost basis of the rights received to the total purchase price of the shares.
For example, if the cost basis of the rights was $1000.00, add 1,000 to the purchase price of the shares bought through the rights offering.
You will need to do a cash transfer to balance the cash accounts; If you used the Broker account as the source of funds for the buy, transfer the proceeds of the rights “sale” held in the Suspense account into the Broker account. If the Suspense account was used to fund the buy, a transfer from the Broker account of the necessary cash to fund the total purchase will be required.
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