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Chapter 8 - Solution Manual

2 segregation of cash for compensating balance

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2. Segregation of cash for compensating balance arrangements that are legal restrictions on the availability of cash. SAB Topic 6.H.1, Applicability a. Arrangements with other lending institutions.
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159 Question: In addition to banks, is ASR 148 applicable to arrangements with factors, commercial finance companies or other lending entities? Interpretive Response: Yes. b. Bank holding companies and brokerage firms. Question: Do the provisions of ASR 148 apply to bank holding companies and to brokerage firms filing under Rule 17a-5? Interpretive Response: Yes; however, brokerage firms are not expected to meet these requirements when filing Form X-17a-5. c. Financial statements of parent company and unconsolidated subsidiaries. Question: Are the provisions of ASR 148 applicable to parent company financial statements in addition to consolidated financial statements? To financial statements of unconsolidated subsidiaries? Interpretive Response: ASR 148 data for consolidated financial statements only will generally be sufficient when a filing includes consolidated and parent company financial statements. Such data are required for each unconsolidated subsidiary or other entity when a filing is required to include complete financial statements of those entities. When the filing includes summarized financial data in a footnote about such entities, the disclosures under ASR 148 relating to the consolidated financial statements will be sufficient. d. Foreign lenders. Question: Are ASR 148 disclosure requirements applicable to arrangements with foreign lenders? Interpretive Response: Yes. SAB Topic 6.H.3, Compensating balances a. Compensating balances for future credit availability. Facts: Rule 5-02.1 of Regulation S-X requires disclosure of compensating balances in order to avoid undisclosed commingling of such balances with other funds having different liquidity characteristics and bearing no determinable relationship to borrowing arrangements. It also requires footnote disclosure distinguishing the amounts of such balances maintained under a formal agreement to assure future credit availability. Question: In disclosing compensating balances maintained to assure future credit availability, is it necessary to segregate compensating balances for an unused portion of a regular line of credit when a total compensating balance amount covering both used and unused amounts of a line of credit is disclosed? Interpretive Response: No. b. Changes in compensating balances. Facts: ASR 148 guidelines indicate the need for additional disclosures where compensating balances were materially greater during the period than at the end of the period.
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160 Question: Does this disclosure relate to changes in the arrangement (e. g., the required compensating balance percentage) or changes in borrowing levels?
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2 Segregation of cash for compensating balance arrangements...

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