Accounting Requirements for REA Telephone Borrowers

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