Stock trades and realized gains/losses

Derek Atkins warlord@MIT.EDU
Sat Jan 11 16:29:33 CST 2003


linas@linas.org (Linas Vepstas) writes:

> > 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'.

So what you are saying is that if you ever DO realize the loss, you
have to recapture that gain/loss and, in effect, "re-point" all those
"unrealized loss" transactions to your realized-loss account...
Meaning you need to know whether an "adjustment transaction" is for
realized or unrealized gains/losses....  How, "special".

Obviously you cannot just change the account of the un-realized
gains/losses, right?  So, you would need to add a new txn from
unrealizedGL to realizedGL.  That's what I mean by "special".

> 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 ....

Sigh.  Can I go shoot someone now?

-derek

-- 
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
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