Distributions Scenario for STAR Method

This scenario describes distributions for a Joint Venture (JVLCLP processing security type) security when you use the STAR accounting method. When you use the equity method of accounting for a position, you can hold positions that use the Equity Method (EMA) accounting method as well as positions that use the STAR accounting method. This section applies to use of the STAR accounting method.

For this scenario the Entity (STARENT) has just one accounting basis (USTAX). Positions held as STAR method process as they traditionally do in the system, as "fair value" instruments. You can and should use core STAR unrealized gain/loss processing for any pricing and valuation of the security. The one manual process you need is processing Return of Capital/Return of Income. In a multi-basis portfolio that holds positions both as Equity Method and STAR Method, you need to manually enter income and capital distributions. In that case the system accounts for STAR entries as follows.

Distributions may come in the form of cash (Return of Capital) and/or investment income (Return of Income), which are both allocated pro-rata to the lot level.

The Sample Joint Venture security has two open lots of 500 units (LOT1) and 300 units (LOT2). The fund is due a cash distribution of $10,000 and net income from operations of $3,000. Note that for the STAR method there is no Unrealized Income/Loss (or Undistributed Investment Income) to offset the entry. Instead the Cost and Income Distribution combines to create the receivable.

The two lots are updated pro-rata to reflect the following balances. The position level stores the total balances as well.

• Cash. $6,250 for LOT1, $3,750 for LOT2

• Investment Income. $1,875 for LOT1, $1,125 for LOT2

Finally, the ledger entries for this transaction follow. Accounts added to support the use of the equity method of accounting appear in yellow.