[Federal Register Volume 61, Number 148 (Wednesday, July 31, 1996)]
[Rules and Regulations]
[Pages 39844-39850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18806]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 1770
RIN 0572-AB10
Accounting Requirements for RUS Telecommunications Borrowers
AGENCY: Rural Utilities Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Rural Utilities Service (RUS) is amending its regulations
on accounting policies and procedures for RUS telecommunications
borrowers as set forth in RUS's regulations concerning Accounting
System Requirements for RUS Telecommunications Borrowers. This rule
establishes an accounting interpretation for postretirement benefits
that addresses both the requirements of the Financial Accounting
Standards Board (FASB) and the Federal Communications Commission (FCC).
It also sets 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.
EFFECTIVE DATE: This rule is effective August 30, 1996.
FOR FURTHER INFORMATION CONTACT: Ms. Roberta D. Purcell, Director,
Program Accounting Services Division, Rural Utilities Service, STOP
1523, room 2221, South Building, U.S. Department of Agriculture,
Washington, DC 20250-1523, telephone number (202) 720-9450.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule has been determined to be not significant for the
purposes of Executive Order 12866 and therefore has not been reviewed
by the Office of Management and Budget (OMB).
Regulatory Flexibility Act Certification
The Administrator of RUS has determined that the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.) does not apply to this final
rule.
Information Collection and Recordkeeping Requirements
The information collection and recordkeeping requirements contained
in this rule have been approved by OMB under control number 0572-0003
pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35,
as amended.) Comments regarding these requirements may be sent to
Roberta D. Purcell, Director, Program Accounting Services Division,
Rural Utilities Service, STOP 1523, Washington, DC 20250-1523.
National Environmental Policy Act Certification
The Administrator, RUS, has determined that this final 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 final 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 final 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 RUS and RTB loans and loan guarantees, and RTB
loans, to governmental and nongovernmental entities from coverage under
this order.
Executive Order 12778
This final rule has been reviewed under Executive Order 12778,
Civil Justice Reform. This final rule: (1) Will not preempt any state
or local laws, regulations, or policies, unless they present an
irreconcilable conflict with
[[Page 39845]]
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.
National Performance Review
This regulatory action is being taken as part of the National
Performance Review program to eliminate unnecessary regulations and
improve those that remain in force.
Background
In order to facilitate the effective and economical operation of a
business, 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 FCC
prescribes a Uniform System of Accounts (USoA) for the
telecommunications industry.
RUS, 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 RUS with financial information that can be analyzed
and compared with the operations of other borrowers in the RUS program,
all RUS borrowers must maintain financial records that utilize uniform
accounts and uniform accounting policies and procedures. The standard
RUS security instrument, therefore, requires borrowers to maintain
their books, records, and accounts in accordance with methods and
principles of accounting prescribed by RUS in the RUS USoA for its
telecommunications borrowers.
To ensure that borrowers consistently account for and apply the
provisions of recent pronouncements of the FASB and the FCC, the RUS
USoA must be revised and updated as changes in generally accepted
accounting principles and the FCC USoA occur. RUS is, therefore,
establishing 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.
RUS is also establishing 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.
RUS is also setting forth an accounting interpretation that
establishes the accounting policies and procedures for the Rural
Economic Development loan and grant programs recently established by
the Rural Business and Cooperative Development Service and for
investments in satellite and cable television services.
Comments
A proposed rule entitled Accounting Requirements for REA
Telecommunications Borrowers, published September 14, 1994, at 59 FR
47097, invited interested parties to submit comments on or before
November 14, 1994. Comments were received from telecommunications
borrowers, certified public accountants (CPAs), state wide
associations, and national trade associations. The following paragraphs
address the various topics that were discussed by the commenters.
Interpretation No. 101, Postretirement Benefits
Comment. Some commenters questioned the need for actuarial studies
if the only benefit provided is an item such as local phone service.
Response. As with all statements issued by FASB, the provisions of
Statement No. 106 need not be applied to immaterial amounts. If the
borrower and the independent CPA engaged to perform the annual audit of
the borrower's financial statements are satisfied as to the
immateriality of a benefit provided, Statement No. 106 need not be
adopted and accordingly, an actuarial study is not required. It should
be noted, however, that an initial actuarial study may be necessary in
order to determine the materiality of the benefit provided. For this
reason, no revision was made to the final rule.
Comment. Several commenters presented arguments for retaining the
option to immediately recognize the transition obligation created by
the implementation of Statement No. 106.
Response. On December 26, 1991, the FCC issued 6 FCC Rcd 7560,
which requires telecommunications carriers to recognize the transition
obligation on a delayed basis thereby eliminating the option of
immediate recognition. In order to ensure the consistent and uniform
application of generally accepted accounting principles among all
telecommunications borrowers, RUS requires its borrowers to comply with
the FCC USoA. Therefore, all RUS borrowers are required to adopt the
delayed recognition required by the FCC. If a state regulatory body
requires immediate recognition of the postretirement benefit transition
obligation, the transition obligation should be recognized on a delayed
basis with the jurisdictional difference accounts used to effect
compliance with the state requirements.
Interpretation No. 102, Rural Telephone Bank Stock
Comment. Several commenters suggested that the purchase of Class B
RTB stock should be accounted for as an increase in interest expense or
as an amortizable loan cost rather than as the acquisition of an asset.
Response. While the investment in Class B RTB stock is a
requirement for a borrower to secure financing from the RTB, the owner
of Class B RTB stock is entitled to patronage refunds in the form of
additional shares of Class B stock. When a borrower has repaid all of
its RTB loans, the borrower may request that the Class B stock be
converted into Class C stock. Class C stock earns cash dividends and
may be redeemed at some future time in accordance with the bylaws of
the RTB. The aforementioned characteristics are indicative of an
investment, not an item of expense, and as such, no revision was made
to the final rule.
Comment. One commenter stated that income should be recognized at
the time the patronage refund is allocated to the owners of Class B RTB
stock in order to insure that members of a telecommunications
cooperative receive their fair share of the patronage refund.
Response. In 1975, this issue was considered by the Staff
Subcommittee on Accounts of the National Association of Regulatory
Utility Commissioners. Because Class B RTB stock has no known market
value, pays no return or interest, and cannot be alienated except in
connection with the transfer of the outstanding RTB loan, the committee
[[Page 39846]]
recommended that the patronage refunds be recorded as a memorandum
entry on the books of account until such time as the value of the stock
is realized, in cash, through its redemption.
Comment. Several commenters raised issues regarding RTB
privatization.
Response. When privatization of the RTB actually begins, any
necessary revisions to this regulation will be proposed and exposed for
comment at that time.
Comment. One commenter questioned the determinability of the fair
value of Class C stock based on Accounting Principle Board Opinion No.
29, Accounting for Nonmonetary Transactions (Opinion No. 29).
Response. The conversion of Class B RTB stock to Class C RTB stock
meets the definition of a nonmonetary exchange as set forth in Opinion
No. 29. In Opinion No. 29, the Accounting Principles Board concluded
that the accounting for nonmonetary transactions should be based upon
the fair value of the assets involved. Paragraphs 25 & 26 of the
opinion, however, raise questions concerning the determination of fair
value within reasonable limits. While the face value of Class C stock
is considered to be its surrender value, the indefinite nature of its
realizability requires the consideration of the time value of money.
Calculating the present value of the Class C stock is not feasible
because it is not known when the Class C stock will become redeemable.
Therefore, the fair value of this transaction cannot be determined
within reasonable limits and as such, must be accounted for at the
recorded value of the Class B RTB stock. The final rule has been
revised accordingly.
Comment. Several commenters expressed concern regarding the tax
issues that would be raised if income is recognized at the time Class B
stock is converted into Class C stock.
Response. While income tax issues are of great concern to RUS
borrowers and we are sympathetic to these concerns, accounting
interpretations issued by RUS must be based upon the appropriate,
consistent application of generally accepted accounting principles
(GAAP). As such, RUS cannot prescribe accounting requirements that do
not comply with GAAP in an effort to circumvent either Federal or state
income tax laws. It should be noted, however, that by recording the
conversion of Class B stock at its recorded value, no income is
recognized until the Class C stock is actually redeemed.
Interpretation No. 103, Cushion of Credit Investments
Comment. One commenter suggested that interest earned on the RUS
Cushion of Credit account should be recorded as a credit to interest
expense rather than interest income under the ``right of offset'' as
discussed in FASB Technical Bulletin No. 88-2, Definition of a Right of
Setoff (FTB No. 88-2).
Response. FTB No. 88-2 was superseded, in its entirety, by FASB
Interpretation No. 39, Offsetting of Amounts Related to Certain
Contracts (Interpretation No. 39). Interpretation No. 39 states that
the offsetting of assets and liabilities in the balance sheet is
improper except where a right of offset exists. A right of offset
exists only when each of two parties owes the other determinable
amounts. In accordance with paragraph 5, footnote 2, of Interpretation
No. 39, cash on deposit at a financial institution must be considered
cash by the depositor rather than an amount owed to the depositor.
Therefore, deposits in the RUS Cushion of Credit account do not meet
the criteria required for offsetting against the principle owed on an
outstanding RUS loan. As such, no offset of interest income and expense
is appropriate under Interpretation No. 39 and no revision was made to
the final rule.
Interpretation No. 104, Rural Economic Development Loan and Grant
Program
Comment. Two commenters objected to recording the funds received
from a Rural Economic Development grant as income.
Response. The establishment of a revolving loan program with
Federal grant funds creates special concerns from an accounting
perspective. The customary Federal grant is made for a specific project
or purpose. The income to the grantee is offset by the costs incurred
in the project, thereby eliminating any net income effect. When a
revolving loan program is established, however, the grantee incurs no
immediate expense with which to offset the grant proceeds. The grant
proceeds are loaned to a third party thereby creating an asset
(receivable) from that third party. As the loan is repaid, the asset is
reduced and additional funds are available for relending. While there
may be the incidental costs of administering the loan program, no
additional costs are incurred until a loan actually goes into default.
In fact, under the Rural Business and Cooperative Development Service's
grant program, after the initial grant funds have been loaned and
repaid, the borrower may charge a reasonable rate of interest on its
revolving loans. The grant program may, therefore, actually become
income producing.
Additionally, because 7 CFR Part 1703, Subpart B, Rural Economic
Development Loan and Grant Program, is somewhat ambiguous as to the
final disposition of the grant funds upon termination of the revolving
loan program, further accounting concerns are raised.
The accounting for a rural economic development grant is therefore,
dependent upon the grant agreement itself. If the grant agreement
requires repayment of the funds upon termination of the revolving loan
program, the funds must be recorded as a liability. If the grant
agreement stipulates that there is no obligation for repayment, the
funds should be recorded as a permanent infusion of capital. If,
however, the agreement is silent as to the final disposition of the
grant funds, the funds must be recorded as income. The final rule has
been revised accordingly.
Interpretation No. 105, Satellite and Cable Television Services
Comment. One commenter suggested that this interpretation should
apply to any type of service offered through a subsidiary, joint
venture, or as a segment of an entity's operations.
Response. While the underlying accounting principles used to
establish this accounting interpretation are applicable to any type of
service offered through a subsidiary, joint venture, or a segment of an
entity's operations, the purpose of this interpretation was to
specifically address borrowers' investments in satellite and cable
television services. For this reason, no revision was made to the final
rule.
List of Subjects in 7 CFR Part 1770
Accounting, Loan programs--communications, Reporting and
recordkeeping requirements, Rural areas, Telecommunications, Uniform
System of Accounts.
For the reasons set forth in the preamble, RUS hereby amends 7 CFR
chapter XVII as follows:
PART 1770--ACCOUNTING REQUIREMENTS FOR RUS TELECOMMUNICATIONS
BORROWERS
1. The authority citation for part 1770 continues to read as
follows:
Authority: 7 U.S.C. 901 et seq.; 7 U.S.C.1921 et seq.; Pub. L.
103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).
2. Subpart C is added to read as follows:
[[Page 39847]]
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 Utilities Service (RUS) and the Rural Telephone Bank (RTB)
for all telecommunications 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 (FCC) in its Uniform System of Accounts for
telecommunications companies (47 CFR part 32), as those methods and
principles of accounting are supplemented from time to time by RUS.
(b) This subpart implements those standard provisions of the RUS
and RTB security instruments by prescribing accounting principles,
methodologies, and procedures applicable to all telecommunications
borrowers for particular situations.
Sec. 1770.27 Definitions.
As used in this part:
Borrower is an RUS telecommunications borrower.
Cushion of Credit Account is a 5 percent interest bearing account
established by RUS 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.
RE Act is the Rural Electrification Act of 1936, as amended (7
U.S.C. 901 et seq.).
RETRF is the Rural Electric and Telephone Revolving Fund.
RTB is the Rural Telephone Bank.
RUS is the Rural Utilities Service, an agency of the United States
Department of Agriculture, or its predecessor or successor.
Sec. 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
Number and Title
101 Postretirement Benefits
102 Rural Telephone Bank 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 Number
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
A. 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. (Statement 106 is available from the Financial Accounting
Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT. 06856-
5116.)
B. 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, day care, legal services,
and housing subsidies provided outside of a pension plan.
C. 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.
D. Postretirement benefit plans generally fall into three
categories: single-employer defined benefit plans, multiemployer
plans, and multiple-employer plans.
E. 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.
F. 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.
G. 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.
H. 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.
I. Accounting Requirements
A. All borrowers shall adopt the accrual accounting provisions
and reporting
[[Page 39848]]
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. Borrowers may not account for postretirement benefits on a
``pay-as-you-go'' basis.
B. 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 FCC issued 6 FCC Rcd 7560, which requires
telecommunications carriers to recognize the transition obligation
on a delayed basis. RUS reviewed this issuance and has determined
that borrowers must comply with this ruling and recognize the
transition obligation on a delayed basis.
C. 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.
D. 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. (RAO Letter 20 is
available from the Federal Communications Commission, 1919 M Street,
NW., Washington, DC 20554.) 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.
E. 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.
F. The benefits portion of the expense matrix for the
appropriate Part 32 expense accounts shall be used to record the
current period service cost component of the current year's net
periodic postretirement benefit cost. The interest cost component,
return on plan assets, amortization of prior service cost, gains and
losses, and amortization of the transition obligation shall be
charged to the benefits portion of the expense matrix of Account
6728, Other General and Administrative.
II. Effective Date and Implementation
A. 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
A. 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 RUS on behalf of the United States in exchange
for capital furnished to RTB.
B. Class B stock is issued only to recipients of loans under
Section 408 of the Rural Electrification Act (RE Act). Borrowers
receiving loan funds pursuant to Section 408(a) (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.
C. 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
A. The purchase of RTB stock 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.
B. Purchases of Class C RTB stock shall be debited to Account
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.
C. Once a borrower has repaid all of its RTB loans, it may
request that its Class B stock be converted to Class C stock. When
the conversion is made, Account 1402.2 shall be debited and Account
1402.1 shall be credited for the face value of the stock converted.
Account 1402.21, Investments in Nonaffiliated Companies--Class C RTB
Stock--Cr., shall be credited and Account 1402.11 shall be debited
for the face value of the Class B stock that has been received as
patronage refunds.
103 Cushion of Credit Investments
A. The RUS 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
A. The following journal entries shall be used by RUS borrowers
to record the transactions associated with cushion of credit
payment:
1. Dr. 4210.18, RUS Notes--Advance Payments, Dr. Cr. 1130.1/1120.11,
Cash--General Fund. To record the cushion of credit payment.
2. Dr. 4210.18, RUS Notes--Advance Payments, Dr. Cr. 7320/7300.2,
Interest Income. To record interest earned on cushion of credit
deposits.
3. Dr. 4210.12, RUS Notes, Cr. 4210.18, RUS Notes--Advance Payments,
Dr. To apply cushion of credit payments (and interest) to the RUS
note.
104 Rural Economic Development Loan and Grant Program
A. On December 21, 1987, Section 313, Cushion of Credit Payments
Program (7 U.S.C. 901 et seq.), was added to the RE Act. Section 313
establishes a Rural Economic Development Subaccount and authorizes
the Administrator of the RUS to provide zero interest loans or
grants to RE Act borrowers for the purpose of promoting rural
economic development and job creation projects. Effective December
5, 1994, this authority was assigned to the Administrator, Rural
Business and Cooperative Development Service.
B. 7 CFR part 1703, Subpart B, Rural Economic Development Loan
and Grant Program, sets forth the policies and procedures relating
to the zero interest loan program and for approving and
administering grants.
Accounting Requirements
A. The accounting journal entries required to record the
transactions associated with a Rural Economic Development grant are
as follows:
1. Dr. 1130.4/1120.14, Cash--General Fund--Economic Development
Grant Funds. Cr. 4210.25, RUS Notes--Economic Development Grant; Cr.
4540.41, Other Capital--Miscellaneous; or Cr. 7360/7300.6, Other
Nonoperating Income. To record grant funds disbursed by RUS. If the
grant agreement requires repayment of the funds upon termination of
the revolving loan program, Account 4210.25 shall be credited. If
the grant agreement states that there is absolutely no obligation
for repayment upon termination of the revolving loan program, the
funds shall be accounted for as a permanent infusion of capital by
crediting Account 4540.41. If, however, the grant agreement is
silent as to the final disposition of the grant funds, Account 7360/
7300.6 shall be credited.
2. 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.
[[Page 39849]]
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
B. The accounting journal entries required to record the
transactions associated with a Rural Economic Development loan are
as follows:
1. Dr. 4210.26, Economic Development Notes--Unadvanced, Fr. Cr.
4210.25, Economic Development Notes. To record the contractual
obligation to RUS for the Economic Development Notes.
2. 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.
3. Dr. 1401.3, Other Investments in Affiliated Companies--Federal
Econmic Development Loans or Dr. 1402.6, Other Investments in
Nonaffilitated Companies--Federal Economic Development Loans. Cr.
1130.6/1120.16, Cash--General Fund--Ecoomice Development Loan Funds.
To record the discursement of economci development loand funds to
the project.
4. 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.
5. 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.
6. Dr. 7370, Special Charges. Cr. 1130.1, Cash--General Funds. 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 RUS.
7. 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.
8. Dr. 4210.25, Economic Development Notes. Cr. 1130.6/1120.16,
Cash--General Fund--Economic Development Loan Funds. To record the
repayment, to RUS, of the economic development loan funds.
105 Satellite and Cable Television Services
A. Many RUS 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
A. 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. i. 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 recognized only 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.
ii. 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. i. If a borrower provides
satellite or cable television service as a segment of its current
operations and there are no shared assets between this activity and
the regulated telecommunications 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 service 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.
ii. If a borrower provides satellite or cable television service
as a segment of current operations and shares assets between this
activity and the regulated telecommunications activities of the
borrower, the franchise and application fees shall be debited to a
subaccount of Account 2690, Intangibles. The cost of the satellite
or cable television equipment shall be debited to a subaccount of
Account 2231, Radio Systems. Revenues earned from providing
satellite or cable service 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. i. If a borrower sells or installs satellite or cable
television equipment as a segment of its current operations and
there are no shared assets between this activity and the regulated
telecommunications 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.
ii. If a borrower sells or installs satellite or cable
television equipment as a segment of its current operations and
shares assets between this activity and the regulated
telecommunications 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
A. In October 1987, FASB issued Statement of Financial
Accounting Standards No. 94, Consolidation of All Majority-Owned
Subsidiaries (Statement No. 94). (Statement 94 is available from the
Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116,
Norwalk, CT 06856-5116.) For purposes of reporting to RUS, Statement
No. 94 shall be applied as follows:
[[Page 39850]]
1. A borrower that is a subsidiary of another entity shall
prepare and submit to RUS 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.
B. Although Statement No. 94 requires the consolidation of
majority-owned subsidiaries, the RUS Form 479, Financial and
Statistical Report for Telecommunications Borrowers, shall be
prepared on an unconsolidated basis by all borrowers.
Dated: July 17, 1996.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 96-18806 Filed 7-30-96; 8:45 am]
BILLING CODE 3410-15-P