Stock trades and realized gains/losses

[Linas Vepstas]

On Fri, Jan 10, 2003 at 11:51:34PM -0500, Derek Atkins was heard to remark:
> > ?? The IRS in the United States forces you to do it this way, if you
> 
> Question: when you do this aren't you by definition REALIZING the

Yes. My bad. I was still hyperventilating when I wrote that.

> You started to give an example with Enron, but you never finished it.
> Could you, please?  To me, the fact that Enron stock went from
> $100/share to $1/share does not change the basis of your stock

It doesn't change the cost basis, but it is needed when preparing
a formal balance sheet for a business.  You don't want to cavalerly
say 'gee, todays price for enron is x', you want to say 'we have 
adjusted the book value of our enron holdings to reflect the reality
of the marketplace, and this adjustment is shown in the 'unrealized
losses' line'.

The formality of creating an auditable transaction like this has
some real reporting advantages.  Especially if we had some juicy
profits because enron later went up ;->  Ahh, yes, accounting ....


--linas


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