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Author: edmus Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121480  
Subject: Re: Confusing fractional shares question Date: 2/15/2000 3:42 AM
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<<When the stock split occurred, I ended up with
 280.37 shares, and cash in lieu of 0.37 shares
 in the amount of $22.>>

<< First point...isn't your math off a little bit? If you originally had 140.37 shares pre-split, wouldn't you have 280.74 post split? Perhaps all of these little fractional shares
caused a blip in the computations. >>

Synchronicity was dead-on in his explanation of this. Schwab matched my 140.37 shares with 140 new shares. Instead of matching the 0.37, they gave me 'cash in lieu'
of 0.37 new shares.  Pretty stupid, huh, considering they let me reinvest in fractional shares in the first place?!

So I end up with 280.37 shares, and 'cash in lieu' for 0.37 more in the amount of $22.

<<Nevertheless...let's make life easy...at least for ME. Let's assume that your total basis in your 140.37 shares was $9,800. Again, YOUR basis will be completely different,
and you are going to have to "split" all of these goofy little shares separately if you want to be technically correct. >>

I guess I'm still a little confused with how splitting all the little shares separately is going to help for calculating my cost basis.  Seems like the result
would be the same as for taking the average of all 140.37 shares, unless you're saying that part of the 0.37 shares sold represents a short-term gain, with
the majority being a long-term gain (since the initial 140 shares purchased was over a year ago).

Can you work through a simple(ha!) example?  For instance lets say I originally bought 10 shares of a stock at $100/share.  And lets say there were
3 dividend reinvestments made...
                             #      price    cost
-------------------------------------------------
1/98  Initial investment 10 shares * $100 = $1000
3/98  Dividend reinv    0.1 shares * $120 =   $12
6/98  Dividend reinv    0.1 shares * $150 =   $15
3/99  Dividend reinv    0.1 shares * $160 =   $16
-------------------------------------------------
Totals                 10.3 sh              $1043

In 12/99, with the stock still at $160/share, it splits 2:1. So I receive 10 additional shares, and 'cash in lieu' of 0.3 more (or $80*0.3 = $24).
I now own 20.3 shares and a tax nightmare :>(

What is the 'technically correct' way to calculate my cost basis for the 0.3 shares I received cash for, and the remaining 20.3 shares that I still own?

If you don't have the time to work through this, I'll hazard my own guess later & see what the other Fools think.  I'm guessing that a very small portion of the
0.3 in-lieu-of shares represents a short-term gain because of the 3/99 investment.

Silly me, thinking dividend re-investment was a good thing!

Thanks again,

Edmus
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