[Federal Register Volume 59, Number 177 (Wednesday, September 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22609]


[[Page Unknown]]

[Federal Register: September 14, 1994]


                                                   VOL. 59, NO. 177

                                      Wednesday, September 14, 1994

DEPARTMENT OF AGRICULTURE

Rural Electrification Administration

7 CFR Part 1770

 

Accounting Requirements for REA Telephone Borrowers

AGENCY: Rural Electrification Administration, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Rural Electrification Administration (REA) proposes to 
amend its regulations on accounting policies and procedures for REA 
telephone borrowers as set forth in REA's regulations concerning 
Accounting System Requirements for REA Telephone Borrowers. This 
proposed rule would establish an accounting interpretation for 
postretirement benefits that addresses both the requirements of the 
Financial Accounting Standards Board and the Federal Communications 
Commission. It would also set forth accounting interpretations that 
establish uniform accounting procedures for Rural Telephone Bank (RTB) 
stock, cushion of credit investments, Rural Economic Development loans 
and grants, and satellite or cable television service investments.

DATES: Written comments must be received by REA by November 14, 1994.

ADDRESSES: Submit written comments to Ms. Roberta E. Detwiler, Chief, 
Technical Accounting and Auditing Staff, Borrower Accounting Division, 
Rural Electrification Administration, room 2222 South Building, U.S. 
Department of Agriculture, Washington, DC 20250, telephone number (202) 
720-5227. REA requires a signed original and three copies of all 
comments (7 CFR Part 1700). All comments received will be made 
available for inspection at room 2234 South Building during regular 
business hours (7 CFR 1.27 (b)).

FOR FURTHER INFORMATION CONTACT: Ms. Roberta E. Detwiler, Chief, 
Technical Accounting and Auditing Staff, Borrower Accounting Division, 
Rural Electrification Administration, room 2222, South Building, U.S. 
Department of Agriculture, Washington, DC 20250, telephone number (202) 
720-5227.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been determined to be not significant for 
the purposes of Executive Order 12866 and therefore has not been 
reviewed by OMB.

Regulatory Flexibility Act Certification

    The Administrator of REA has determined that the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.) does not apply to this proposed 
rule.

Information Collection and Recordkeeping Requirements

    In compliance with the Office of Management and Budget (OMB) 
regulations (5 CFR Part 1320) which implements the Paperwork Reduction 
Act of 1980 (Pub. L. 96-511) and section 3504 of that Act, the 
information collection and recordkeeping requirements have been 
approved by the Office of Management and Budget (OMB) under control 
number 0572-0003. Comments regarding these requirements may be sent to 
the United States Department of Agriculture, Clearance Office, OIRM, 
Room 404-W, Washington, DC 20250 or to the Office of Management and 
Budget, Office of Information and Regulatory Affairs, Room 10102, 
Washington, DC 20503.

National Environment Policy Act Certification

    The Administrator, REA, has determined that this proposed rule will 
not significantly affect the quality of the human environment as 
defined by the National Environmental Policy Act of 1969 (42 U.S.C. 
4321 et seq.). Therefore, this action does not require an environmental 
impact statement or assessment.

Catalog of Federal Domestic Assistance

    The program described by this proposed rule is listed in the 
Catalog of Federal Domestic Assistance Program under numbers 10.851--
Rural Telephone Loans and Loan Guarantees and 10.852--Rural Telephone 
Bank loans. This catalog is available on a subscription basis from the 
Superintendent of Documents, the United States Government Printing 
Office, Washington, DC 20402.

Executive Order 12372

    This proposed rule is excluded from the scope of Executive Order 
12372, Intergovernmental Consultation. A Notice of Final Rule entitled 
Department Programs and Activities Excluded from Executive Order 12372 
(50 FR 47034) exempts REA and Rural Telephone Bank (RTB) loans and loan 
guarantees, and RTB loans, to governmental and nongovernmental entities 
from coverage under this order.

Executive Order 12778

    This proposed rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. This proposed rule:
    (1) Will not preempt any state or local laws, regulations, or 
policies, unless they present an irreconcilable conflict with this 
rule;
    (2) will not have any retroactive effect; and
    (3) will not require administrative proceeding before parties may 
file suit challenging the provisions of this proposed rule.

Background

    In order to facilitate the effective and economical operation of a 
business enterprise, adequate and reliable financial records must be 
maintained. Accounting records must provide a clear, accurate picture 
of current economic conditions from which management can make informed 
decisions in charting the company's future. The rate regulated 
environment in which a telecommunications carrier operates causes an 
even greater need for financial information that is accurate, complete, 
and comparable with that generated by other carriers. For this reason, 
the Federal Communications Commission (FCC) prescribes a Uniform System 
of Accounts (USoA) for the telecommunications industry.
    REA, as a Federal lender and mortgagee, and in furthering the 
objectives of the Rural Electrification Act (RE Act) (7 U.S.C. 901 et 
seq.) has a legitimate programmatic interest and a substantial 
financial interest in requiring adequate records to be maintained. In 
order to provide REA with financial information that can be analyzed 
and compared with the operations of other borrowers in the REA program, 
all REA borrowers must maintain financial records that utilize uniform 
accounts and uniform accounting policies and procedures. The standard 
REA security instrument, therefore, requires borrowers to maintain 
their books, records, and accounts in accordance with methods and 
principles of accounting prescribed by REA in the REA USoA for its 
telephone borrowers.
    To ensure that borrowers consistently account for and apply the 
provisions of recent pronouncements of the Financial Accounting 
Standards Board and the Federal Communications Commission (FCC), the 
REA USoA must be revised and updated as changes in generally accepted 
accounting principles and the FCC USoA occur. REA is, therefore, 
proposing to establish a new accounting interpretation that addresses 
the accounting requirements set forth in Statement of Financial 
Accounting Standards No. 106, Employers' Accounting for Postretirement 
Benefits Other Than Pensions (Statement No. 106). Statement No. 106 
requires reporting entities to accrue the expected cost of 
postretirement benefits during the years the employee provides service 
to the entity. Copies of Statements of Financial Accounting Standards 
may be obtained from the Order Department of the Financial Accounting 
Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 
06856-5116.
    REA is also proposing to establish an accounting interpretation for 
RTB bank stock that sets forth the journal entries necessary to record 
the required purchase of Class B RTB stock, patronage refunds in the 
form of additional shares of Class B RTB stock, purchases of Class C 
stock, and dividends received on Class C stock. The interpretation also 
addresses the proper accounting for the conversion of Class B stock to 
Class C stock after all RTB loans have been repaid.
    REA is also proposing to set forth an accounting interpretation 
that establishes the accounting policies and procedures for the Rural 
Economic Development loan and grant programs recently established by 
REA and for investments in satellite and cable television services.

List of Subjects in 7 CFR Part 1770

    Accounting, Loan programs--communications, Reporting and 
recordkeeping requirements, Rural areas, Telephone, Uniform System of 
Accounts.
    For the reasons set forth in the preamble, REA proposes to amend 7 
CFR chapter XVII as follows:

PART 1770--ACCOUNTING REQUIREMENTS FOR REA TELEPHONE BORROWERS

    1. The authority for part 1770 continues to read as follows:

    Authority: 7 U.S.C. 901 et seq.

    2. Subpart C is added to read as follows:

Subpart C--Accounting Interpretations

Sec.
1770.26  General.
1770.27  Definitions.
1770.28-1770.45  [Reserved]
Appendix to Subpart C--Accounting Methods and Procedures Required of 
all Borrowers

Subpart C--Accounting Interpretations


Sec. 1770.26  General.

    (a) The standard provisions of the security instruments utilized by 
the Rural Electrification Administration (REA) and the Rural Telephone 
Bank (RTB) for all telephone borrowers require borrowers to at all 
times keep and safely preserve proper books, records, and accounts in 
which full and true entries will be made of all of the dealings, 
business, and affairs of the borrower in accordance with the methods 
and principles of accounting prescribed by the state regulatory body 
having jurisdiction over the borrower and by the Federal Communications 
Commission in its Uniform System of Accounts for telecommunications 
companies, as those methods and principles of accounting are 
supplemented from time to time by REA.
    (b) This subpart implements those standard provisions of the REA 
and RTB security instruments by prescribing accounting principles, 
methodologies, and procedures applicable to all telephone borrowers for 
particular situations.


Sec. 1770.27  Definitions.

    As used in this part:
    Borrower is an REA telephone borrower.
    Cushion of Credit Account is a 5 percent interest bearing account 
established by REA in which all voluntary payments or overpayments on 
Rural Electric and Telephone Revolving Funds after October 1, 1987, are 
deposited.
    FCC is the Federal Communications Commission
    Part 32 is 47 CFR Part 32, Uniform System of Accounts, issued by 
the Federal Communications Commission.
    RAO is the Responsible Accounting Officer of the Federal 
Communications Commission.
    REA is the Rural Electrification Administration, an agency of the 
United States Department of Agriculture, or its successor.
    RE Act is the Rural Electrification Act of 1936, as amended.
    RETRF is the Rural Electric and Telephone Revolving Fund.
    RTB is the Rural Telephone Bank.


Secs. 1770.28-1770.45  [Reserved]

Appendix to Subpart C--Accounting Methods and Procedures Required of 
All Borrowers

    All Borrowers shall maintain and keep their books of accounts 
and all other books and records which support the entries in such 
books of accounts in accordance with the accounting principles 
prescribed in this appendix.

Numerical Index

------------------------------------------------------------------------
  No.                                 Title                             
------------------------------------------------------------------------
101....  Postretirement Benefits.                                       
102....  Rural Telephone Bank (RTB) Stock.                              
103....  Cushion of Credit Investments.                                 
104....  Rural Economic Development Loan and Grant Program.             
105....  Satellite and Cable Television Services.                       
106....  Consolidated Financial Statements.                             
------------------------------------------------------------------------


------------------------------------------------------------------------
                    Subject matter index                          No.   
------------------------------------------------------------------------
                              C                                         
                                                                        
Cable Television Services....................................        105
Consolidated Financial Statements............................        106
Cushion of Credit Investments................................        103
                                                                        
                              E                                         
                                                                        
Economic Development Loan and Grant Program..................        104
                                                                        
                              F                                         
                                                                        
Financial Statements--Consolidated...........................        106
                                                                        
                              I                                         
                                                                        
Investments--Cushion of Credit...............................        103
                                                                        
                              P                                         
                                                                        
Postretirement Benefits......................................        101
                                                                        
                              R                                         
                                                                        
Rural Economic Development Loan and Grant Program............        104
Rural Telephone Bank Stock...................................        102
                                                                        
                              S                                         
                                                                        
Satellite Television Services................................        105
Stock--Rural Telephone Bank..................................        102
------------------------------------------------------------------------

101  Postretirement Benefits

    Statement of Financial Accounting Standards No. 106, Employers' 
Accounting for Postretirement Benefits Other Than Pensions 
(Statement No. 106), requires reporting entities to accrue the 
expected cost of postretirement benefits during the years the 
employee provides service to the entity. For purposes of applying 
the provisions of Statement No. 106, members of the board of 
directors are considered to be employees of the cooperative. Prior 
to the issuance of Statement No. 106, most reporting entities 
accounted for postretirement benefit costs on a ``pay-as-you-go'' 
basis; that is, costs were recognized when paid, not when the 
employee provided service to the entity in exchange for the 
benefits.
    As defined in Statement No. 106, a postretirement benefit plan 
is a deferred compensation arrangement in which an employer promises 
to exchange future benefits for an employee's current services. 
Postretirement benefit plans may be funded or unfunded. 
Postretirement benefits include, but are not limited to, health 
care, life insurance, tuition assistance, daycare, legal services, 
and housing subsidies provided outside of a pension plan.
    Statement No. 106 applies to both written plans and to plans 
whose existence is implied from a practice of paying postretirement 
benefits. An employer's practice of providing postretirement 
benefits to selected employees under individual contracts with 
specific terms determined on a employee-by-employee basis does not, 
however, constitute a postretirement benefit plan under the 
provisions of this statement.
    Postretirement benefit plans generally fall into three 
categories: single-employer defined benefit plans, multiemployer 
plans, and multiple-employer plans.
    A single-employer plan is a postretirement benefit plan that is 
maintained by one employer. The term may also be applied to a plan 
that is maintained by related parties such as a parent and its 
subsidiaries. A multiemployer plan is a postretirement benefit plan 
in which two or more unrelated employers contribute, usually 
pursuant to one or more collective-bargaining agreements. One 
characteristic of a multiemployer plan is that the assets 
contributed by one participating employer may be used to provide 
benefits to employees of other participating employers since assets 
contributed by an employer are not segregated in a separate account 
or restricted to provide benefits only to employees of that 
employer.
    A multiple-employer plan is a postretirement benefit plan that 
is maintained by more than one employer but is not a multiemployer 
plan. A multiple-employer plan is generally not collectively 
bargained and is intended to allow participating employers to pool 
their plan assets for investment purposes and reduce the cost of 
plan administration. A multiple-employer plan maintains separate 
accounts for each employer so that contributions provide benefits 
only for employees of the contributing employer.
    The accounting requirements set forth in this interpretation 
focus on single- and multiple-employer plans. The accounting 
requirements set forth in Statement No. 106 for multiemployer plans 
or defined contribution plans shall be adopted for borrowers 
electing those types of plans.
    Under the provisions of Statement No. 106, there are two 
components of the postretirement benefit cost: the current period 
cost and the transition obligation. The transition obligation is a 
one-time accrual of the costs resulting from services already 
provided. Statement No. 106 allows the transition obligation to be 
deferred and amortized on a straight-line basis over the average 
remaining service period of the active employees. If the average 
remaining service period of the active employees is less than 20 
years, a 20-year amortization period may be used.

Accounting Requirements

    All Borrowers shall adopt the accrual accounting provisions and 
reporting requirements as set forth in Statement No. 106. The 
transition obligation and accrual of the current period cost must be 
based upon an actuarial study. This study must be updated to allow 
the Borrower to comply with the measurement date requirements of 
Statement No. 106; however, the study must, at a minimum, be updated 
every five years. REA will not allow Borrowers to account for 
postretirement benefits on a ``pay-as-you-go'' basis.
    Under the provisions of Statement No. 106, an entity may 
recognize the transition obligation, in its entirety, when Statement 
No. 106 is first adopted or the entity may elect to delay the 
recognition of the transition obligation. On December 26, 1991, 
however, the Federal Communications Commission (FCC) issued 6 FCC 
Rcd 7560, which requires telecommunications carriers to recognize 
the transition obligation on a delayed basis. REA reviewed this 
issuance and has determined that Borrowers must comply with this 
ruling and recognize the transition obligation on a delayed basis.
    The deferral and amortization of the transition obligation on a 
delayed basis is considered to be an off balance sheet item. As a 
result, an accounting entry is not required at the time of adoption 
of Statement No. 106. Instead, the transition obligation is 
recognized as a component of postretirement benefit cost as it is 
amortized. The amount of the unamortized transition obligation must 
be disclosed in the notes to the financial statements.
    In accordance with the provisions of Responsible Accounting 
Officer (RAO) Letter 20, released by the FCC on April 24, 1992, 
Account 4310, Other Long-Term Liabilities, shall be used to record 
the liability accrued for postretirement benefits. Borrowers shall 
credit this account for the net periodic cost of postretirement 
benefits for the current year and shall debit this account for any 
fund payments made during the current year.
    Net periodic postretirement benefit cost includes current period 
service cost, interest cost, return on plan assets, amortization of 
prior service cost, gains and losses, and amortization of the 
transition obligation. If fund payments create a debit balance in 
the postretirement benefits portion of Account 4310, the debit 
balance applicable to postretirement benefits shall be reported in 
Account 1410, Other Noncurrent Assets. Account 1410 shall also be 
used to record any prepaid postretirement benefit cost.
    The benefits portion of the expense matrix shall be used to 
record the current year's net periodic cost of postretirement 
benefits in the appropriate Part 32 expense accounts.

Effective Date and Implementation

    For plans outside the United States and for defined benefit 
plans of employers that (a) are nonpublic enterprises and (b) 
sponsor defined benefit postretirement plans with no more than 500 
plan participants in the aggregate, Statement No. 106 is effective 
for fiscal years beginning after December 15, 1994.
    For all other plans, Statement No. 106 is effective for fiscal 
years beginning after December 15, 1992.

102  Rural Telephone Bank Stock

    Capital stock issued by the Rural Telephone Bank consists of 
Class A, Class B, and Class C stock. Class A stock is issued only to 
the Administrator of REA on behalf of the United States in exchange 
for capital furnished to RTB.
    Class B stock is issued only to recipients of loans under 
Section 408 of the RE Act. Borrowers receiving loan funds pursuant 
to Section 408a (1) or (2) of the RE Act are required to invest 5 
percent of the amount of loan funds approved in Class B stock. No 
dividends are payable on Class B stock. All holders of Class B stock 
are entitled to patronage refunds in the form of Class B stock under 
the terms and conditions specified in the bylaws of the RTB.
    Class C stock is available for purchase by Borrowers, 
corporations, and public bodies eligible to borrow under Section 408 
of the RE Act, or by organizations controlled by such Borrowers, 
corporations and public bodies. The payment of dividends is in 
accordance with the bylaws of the RTB.

Accounting Requirements

    The purchase of RTB stock that is required by the RE Act shall 
be debited to Account 1402.1, Investments in Nonaffiliated 
Companies-Class B RTB Stock. Patronage refunds in the form of 
additional shares of RTB Class B Stock shall be debited to Account 
1402.1 and credited to Account 1402.11, Investments in Nonaffiliated 
Companies--Class B RTB Stock--Cr.
    Purchases of Class C RTB stock shall be debited toAccount 
1402.2, Investments in Nonaffiliated Companies--Class C RTB Stock. 
Cash dividends received on Class C RTB stock shall be credited to 
Account 7310, Dividend Income.
    Once a Borrower has repaid all of its Rural Telephone Bank 
loans, it may request that its RTB Class B stock be converted to RTB 
Class C stock. When the conversion is made, Account 1402.2 shall be 
debited for the value of the Class C stock. Accounts 1402.1 and 
1402.11, shall be debited or credited, as appropriate, for the value 
of the Class B stock. The gain realized on the conversion 
(accumulated RTB stock dividends) shall be credited to Account 7310, 
Dividend Income.

103  Cushion of Credit Investments

    The REA Cushion of Credit account is an investment account 
bearing an interest rate of 5 percent. All voluntary payments or 
overpayments on Rural Electric and Telephone Revolving Fund (RETRF) 
loans made after October 1, 1987, are deposited into this account in 
the appropriate Borrower's name.

Accounting Requirements

    The following journal entries shall be used by REA Borrowers to 
record the transactions associated with cushion of credit payment:

Dr. 4210.18, REA Notes--Advance Payments, Dr.
    Cr. 1130.1/1120.11, Cash--General Fund
To record the cushion of credit payment.
Dr. 4210.18, REA Notes--Advance Payments, Dr.
    Cr. 7320/7300.2, Interest Income
To record interest earned on cushion of credit deposits.
Dr. 4210.12, REA Notes
    Cr. 4210.18, REA Notes--Advance Payments, Dr.
To apply cushion of credit payments (and interest) to the REA note.

104  Rural Economic Development Loan and Grant Program

    On December 21, 1987, Section 313, Cushion of Credit Payments 
Program, was added to the Rural Electrification Act. Section 313 
establishes a Rural Economic Development Subaccount and authorizes 
the Administrator of the REA to provide zero interest loans or 
grants to RE Act borrowers for the purpose of promoting rural 
economic development and job creation projects.
    Subpart B, Rural Economic Development Loan and Grant Program, 7 
CFR Part 1703, sets forth the policies and procedures relating to 
the zero interest loan program and for approving and administering 
grants.

Accounting Requirements

    The accounting journal entries required to record the 
transactions associated with a Rural Economic Development Grant are 
as follows:

Dr. 1130.4/1120.14, Cash--General Fund--Economic Development Grant 
Funds
    Cr. 7360/7300.6, Other Nonoperating Income
To record the receipt of economic development grant funds.
Dr. 1401.1, Other Investments in Affiliated Companies--Federal 
Economic Development Grant Loans or
 Dr. 1402.4, Other Investments in Nonaffiliated Companies--Federal 
Economic Development Grant Loans
    Cr. 1130.4/1120.14, Cash--General Fund--Economic Development 
Grant Funds
To record a Federal revolving loan to an economic development 
project.
Dr. 1130.1/1120.11, Cash--General Fund
    Cr. 7360/7300.6, Other Nonoperating Income
To record payment of loan servicing fees charged to the economic 
development project.
Dr. 1130.5/1120.15, Cash--General Fund--Economic Development Non-
Federal Revolving Funds
    Cr. 1401.1, Other Investments in Affiliated Companies--Federal 
Economic Development Grant Loans or
    Cr. 1402.4, Other Investments in Nonaffiliated Companies--
Federal Economic Development Grant Loans
To record the repayment, by the project, of the Federal revolving 
loan.
Dr. 1401.2, Other Investments in Affiliated Companies--Non-Federal 
Economic Development Grant Loans or
Dr. 1402.5, Other Investments in Nonaffiliated Companies--Non-
Federal Economic Development Grant Loans
    Cr. 1130.5/1120.15, Cash--General Fund--Economic Development 
Non-Federal Revolving Funds
To record a Non-Federal revolving loan to an economic development 
project.
Dr. 1210, Interest and Dividends Receivable
    Cr. 7320/7300.2, Interest Income
To record the interest earned on a Non-Federal revolving loan to an 
economic development project.
 Dr. 1130.5/1120.15, Cash--General Fund--Economic Development Non-
Federal Revolving Funds
    Cr. 1401.2, Other Investments in Affiliated Companies--Non-
Federal Economic Development Grant Loans or
    Cr. 1402.5, Other Investments in Nonaffiliated Companies--Non-
Federal Economic Development Grant Loans
    To record the repayment, by the project, of the Non-Federal 
revolving loan.

     The accounting journal entries required to record the 
transactions associated with a Rural Economic Development Loan are 
as follows:

 Dr. 4210.26, Economic Development Notes--Unadvanced, Dr.
    Cr. 4210.25, Economic Development Notes
To record the contractual obligation to REA for the Economic 
Development Notes.
 Dr. 1130.6/1120.16, Cash--General Fund--Economic Development Loan 
Funds
     Cr. 4210.26, Economic Development Notes--Unadvanced, Dr.
 To record the receipt of the economic development loan funds.
    Dr. 1401.3, Other Investments in Affiliated Companies--Federal 
Economic Development Loans or
    Dr. 1402.6, Other Investments in Nonaffiliated Companies--
Federal Economic Development Loans
    Cr. 1130.6/1120.16, Cash--General Fund--Economic Development 
Loan Funds
 To record the disbursement of economic development loan funds to 
the project.
Dr. 1130.1/1120.11, Cash--General Fund
    Cr. 7360/7300.6, Other Nonoperating Income
To record payment of loan servicing fees charged to the economic 
development project.
Dr. 1210, Interest and Dividends Receivable
    Cr. 7320/7300.2, Interest Income
To record the interest earned on the investment of rural economic 
development loan funds.
Dr. 7370, Special Charges
    Cr. 1130.1, Cash--General Fund
To record the payment of interest earned in excess of $500 on the 
investment of rural economic development loan funds.

    Note: Interest earned in excess of $500 must be used for the 
rural economic development project for which the loan funds were 
received or returned to REA.

Dr. 1130.6/1120.16, Cash--General Fund--Economic Development Loan 
Funds
     Cr. 1401.3, Other Investments in Affiliated Companies--Federal 
Economic Development Loans or
     Cr. 1402.6, Other Investments in Nonaffiliated Companies--
Federal Economic Development Loans
 To record repayment, by the project, of the economic development 
loan.
 Dr. 4210.25, Economic Development Notes
    Cr. 1130.6/1120.16, Cash--General Fund--Economic Development 
Loan Funds
 To record the repayment, to REA, of the economic development loan 
funds.

105  Satellite and Cable Television Services

    Borrowers have become involved in providing either satellite or 
cable television services to their members and others through 
subsidiaries, joint ventures, or as segments of their current 
operations.

Accounting Requirements

    This section outlines the accounting to be followed when 
recording transactions involving satellite or cable television 
services.

 1. Separate Subsidiary

    If a Borrower provides satellite or cable television services 
through a separate subsidiary, the investment in the subsidiary 
shall be debited to Account 1401, Investments in Affiliated 
Companies. The net income or loss of the subsidiary shall be debited 
or credited to Account 1401, as appropriate, with an offsetting 
entry to Account 7360, Other Nonoperating Income.

 2. Joint Venture

     If a Borrower provides satellite or cable television services 
through a joint venture, the Borrower's ownership interest dictates 
the accounting methodology. If the Borrower has less than a 20 
percent ownership interest in the joint venture, the investment is 
accounted for under the cost method of accounting in Account 1402, 
Investments in Nonaffiliated Companies. Under the cost method, the 
joint venture's net income or loss is not recorded in the Borrower's 
records. Income is only recognized to the extent of any dividends 
declared by the joint venture. When a dividend is declared, the 
Borrower shall debit Account 1210, Interest and Dividends 
Receivable, and credit Account 7310, Dividend Income. When the 
dividend is received in cash, the Borrower shall debit Account 
1130.1, Cash--General Fund, and credit Account 1210.
     If a Borrower has a 20-percent or more ownership interest in 
the joint venture, the investment is accounted for under the equity 
method in Account 1401, Investments in Affiliated Companies. The 
Borrower's proportionate share of the joint venture's net income or 
loss shall be debited or credited to Account 1401, as appropriate, 
with an offsetting entry to Account 7360, Other Nonoperating Income.

3. Segment of Current Operations

    If a Borrower provides satellite or cable television services as 
a segment of current operations and there are no shared assets 
between this activity and the regulated telephone activities of the 
Borrower, the investment shall be debited to Account 1406.1, 
Nonregulated Investments--Permanent Investment. The net income or 
loss from providing such services shall be debited or credited, as 
appropriate, to Account 1406.3, Nonregulated Investments--Current 
Net Income, with an offsetting entry to Account 7990, Nonregulated 
Net Income.
    If a Borrower provides satellite or cable television services as 
a segment of current operations and shares assets between this 
activity and the regulated telephone activities of the Borrower, the 
franchise and application fees shall be debited to Account 2690, 
Intangibles. The cost of the satellite or cable television equipment 
shall be debited to Account 2231, Radio Systems. Revenues earned 
from providing satellite or cable services shall be credited to 
Account 5280, Nonregulated Operating Revenue, while the associated 
expenses shall be recorded in a subaccount of the applicable 
regulated expense accounts.

4. Sale and Installation of Satellite or Cable Television Equipment

    If a Borrower sells or installs satellite or cable television 
equipment as a segment of current operations and there are no shared 
assets between this activity and the regulated telephone activities 
of the Borrower, the purchase of the equipment shall be debited to 
Account 1406.1, Nonregulated Investments--Permanent Investment. The 
net income or loss from providing such services shall be debited or 
credited, as appropriate, to Account 1406.3, Nonregulated 
Investments--Current Net Income, with an offsetting entry to Account 
7990, Nonregulated Net Income.
    If a Borrower sells or installs satellite or cable television 
equipment as a segment of current operations and shares assets 
between this activity and the regulated telephone activities of the 
Borrower, the purchase of the equipment shall be debited to Account 
1220.2, Property Held for Sale or Lease. Revenues received for the 
sale or installation of the equipment shall be credited to Account 
5280, Nonregulated Operating Revenue, while the associated expenses 
shall be debited to a subaccount of the applicable regulated expense 
accounts.

106  Consolidated Financial Statements

    In October 1987, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 94, Consolidation of 
All Majority-Owned Subsidiaries (Statement No. 94). For purposes of 
reporting to REA, Statement No. 94 shall be applied as follows:
    1. A Borrower that is a subsidiary of another entity shall 
prepare and submit to REA separate financial statements even though 
this financial information is presented in the parent's consolidated 
statements.
    2. In those cases in which a Borrower has a majority-ownership 
in a subsidiary, the Borrower shall prepare consolidated financial 
statements in accordance with the requirements of Statement No. 94. 
These consolidated statements must also include supplementary 
schedules presenting a Balance Sheet and Income Statement for each 
majority-owned subsidiary included in the consolidated statements.
    Although Statement No. 94 requires the consolidation of 
majority-owned subsidiaries, the REA Form 479 is required to be 
prepared on an unconsolidated basis by all Borrowers.

    Dated: September 7, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-22609 Filed 9-13-94; 8:45 am]
BILLING CODE 3410-15-P