cost of operation except under the provisions of § 31.2-22 (b) (10) (ii). § 31.1-16 Exchange of securities.

Before recording journal entries which it is proposed to spread upon the company's books to record the reacquirement of capital stock or other securities issued or assumed by the company under a plan for the issuance in exchange therefor of the company's securities, a statement indicating the plan of accounting proposed by the company shall be presented to this Commission for consideration and approval. Such statement shall give complete information concerning the plan of exchange, the authority of the regulatory body with respect thereto, if any, and the basis upon which the amounts have been determined.

§ 31.1-16A Nonpar capital stock.

Before recording journal entries which it is proposed to spread upon the company's books to record the issuance or assumption by the company of nonpar capital stock or appropriations of surplus for transfer to nonpar capital stock account, a statement indicating the plan of accounting shall be presented to this Commission for consideration and approval. Such statement shall give complete information with respect to the basis upon which the amounts to be recorded have been determined.

§ 31.1-17 Contingent assets and liabilities.

Contingent assets represent a possible source of value to the company contingent upon the fulfillment of conditions regarded as uncertain. Contingent liabilities include items which may under certain conditions become obligations of the company but which are neither direct nor assumed liabilities at the date of the balance sheet. In the annual report to this Commission, contingent assets and contingent liabilities shall not be included in the balance sheet but continent assets and liabilities shall be shown in detail in a supplementary statement accompanying it.

(2) donated surplus (including (i) surplus created by donations of stock or assets by proprietary interests, and (ii) contributions of assets or forgiveness of debt by others) when the intent of the donor or bondholder is to increase the company's invested capital, (3) surplus arising from reacquisition or resale of, or otherwise trading in, the company's own capital stock, and (4) surplus arising from the reduction of the stated value of capital stock due to such occasions as retirement, reorganization, or recapitalization.

(b) The balance-sheet accounts designated as earned-surplus accounts are designed to show the accumulated undistributed surplus derived from the normal operations of the company and from all sources (including sales of fixed assets) other than those sources referred to in paragraph (a) of this section. BALANCE-SHEET ACCOUNTS

INVESTMENTS

§ 31.100:1 Telephone plant in service. This account shall include the original cost of the company's property used in telephone service at the date of the balance sheet as classified under accounts 201 to 277, inclusive. (Note also §§ 31.2-20 and 31.2-21.)

§ 31.100:2 Telephone plant under con

struction.

(a) This account shall include the original cost of construction of telephone plant, other than station apparatus, that is not completed ready for service. It shall include interest during construction, taxes during construction, and all other elements of cost of such construction work. (Note also §§ 31.2-20 to 31.2-22 and account 231.)

(b) When any telephone plant, the cost of which has been included in this account, is completed ready for service, the cost thereof shall be credited to this account and charged to the appropriate telephone plant or other accounts.

NOTE: There may be charged directly to the appropriate plant accounts the cost of any construction project which is estimated to be completed ready for service within two months. There may also be charged directly to the plant accounts the cost of any construction project for which the gross additions to plant are estimated to amount to less than $10,000.

§ 31.100:3 Property held for future

telephone use.

(a) This account shall include the original cost of property, other than station apparatus, owned and held for imminent use in telephone service under a definite plan for such use.

(b) The property included in this account shall be classified according to the primary accounts for telephone plant in service. Separate subaccounts shall be provided for this purpose which accounts shall carry the same numbers as the plant accounts except that each account number shall be prefixed by (1). (Note also §§ 31.2-20 and 31.2-21.)

§ 31.100:4 Telephone plant acquisition adjustment.

(a) This account shall include amounts determined in accordance with § 31.2-21 representing the difference between (1) the amount of money actually paid (or the current money value of any consideration other than money exchanged) for telephone plant acquired, plus preliminary expenses incurred in connection with the acquisition; and (2) the original cost of such plant, governmental franchises and similar rights acquired, less the amounts of reserve requirements for depreciation and amortization of the property acquired. If the actual original cost is not known, the entries in this account shall be based upon an estimate of such cost.

(b) This account shall be subdivided according to the character of the amounts contained therein. In addition to a copy of the journal entry recorded to open the account, the company shall file with this Commission statements showing the basis of the computation of amounts included therein.

(c) The amounts recorded in this account with respect to each property acquisition shall be disposed of, written off, or provision shall be made for the amortization thereof, as follows:

(1) Debit amounts may be charged to earned surplus in whole or in part, or amortized over a reasonable period through charges to account 323, "Miscellaneous income charges," without further direction or approval by this Commission. Should a carrier desire the disposition of debit amounts in any manner other than as herein provided, it shall request that the Commission (i)

approve recommended disposition or (ii) direct appropriate disposition according to the circumstances involved in each transaction.

(2) Credit amounts shall be disposed of in such manner as this Commission may approve or direct, except for credit amounts referred to in subparagraph (3) of this paragraph.

(3) Within one year from the date of inclusion in this account of a debit or credit amount with respect to a current acquisition, the company may dispose of the total amount (other than that portion relating to land) arising from an acquisition of telephone plant by a lump-sum charge or credit, as appropriate, to account 614, "Amortization of telephone plant acquisition adjustment," without further approval of the Commission, provided that such amount does not exceed $2,000 and that the plant was not acquired from an affiliated company.

NOTE A: Disposition as herein provided is for accounting purposes only and shall not be construed as determining or controlling the amount or disposition of the items in a rate or other proceeding, nor shall anything contained in paragraph (c) of this section be construed as precluding the Commission from subsequently requiring disposition of such amounts through charges to earned surplus or from altering a previously determined amortization period.

NOTE B: When these matters involve a carrier subject to both Federal and State regulation, the cooperative procedure heretofore agreed to between Federal and State Commissions shall be invoked. (See Part 1 of this chapter.)

[28 F.R. 13039, Dec. 5, 1963, as amended at 30 F.R. 9544, July 30, 1965]

§ 31.100:7 Telephone plant adjustment.

(a) This account shall include the difference between the original cost, estimated if not known, and the book cost of telephone plant to the extent that such difference is not properly includible in account 100:4, "Telephone plant acquisition adjustment," and for which disposition has not previously been made.

(b) The amounts included in this account shall be so classified as to show the nature of each amount and shall be disposed of as the Commission may approve or direct.

NOTE: The provisions of this account shall not be construed as approving or authorizing the recording of appreciation of plant.

§ 31.101:1 Investments in affiliated

companies.

(a) This account shall include the book cost (note § 31.1-12) of the company's investment in securities issued or assumed by affiliated companies other than securities held in special funds (see also Note B to this account) or as temporary cash investments.

(b) This account shall be maintained so as to show separately the book cost of: (1) Common stocks. (2) Preferred stocks. (3) Long-term debt.

(c) The company's records shall be kept in such manner that in the annual reports to this Commission the securities pledged as collateral security for any of the company's long-term debt or shortterm loans or to secure performance of contracts may be shown separately from securities unpledged.

NOTE A: The value of securities borrowed by the company shall not be included in this account.

NOTE B: The book cost of securities held in special funds shall be included in accounts 104, 136, or 137, as may be appropriate.

NOTE C: Working funds advanced to affiliated companies other than investment advances shall be included in account 115.

§ 31.101:2 Advances to affiliated companies.

This account shall include the amount of the investment advances to affiliated companies.

NOTE: Amounts receivable from affiliated companies which are subject to current settlement shall be included in accounts 117:1 or 120:1, as appropriate.

(a) This account shall include the book cost (note § 31.1-12) of the company's investment in securities issued or assumed by nonaffiliated companies and individuals, other than securities held in special funds (see also Note C to this account) or as temporary cash investments; also its investment advances to such parties and special deposits of cash for more than 1 year from date of deposit.

(b) This account shall be maintained so as to show separately the book cost of: (1) Stocks.

(2) Long-term debt.

(3) Investment advances.

(4) Special deposits of cash for more than 1 year from date of deposit.

(c) The company's records shall be kept in such manner that in the annual reports to this Commission the securities pledged as collateral security for any of the company's long-term debt or shortterm loans or to secure the performance of contracts may be shown separately from the securities unpledged.

NOTE A: Amounts receivable from nonaffiliated companies and individuals which are subject to current settlement shall be included in accounts 117:2 or 120:2, as appropriate.

NOTE B: The value of securities borrowed by the company shall not be included in this account.

NOTE C: The book cost of securities held in special funds shall be included in accounts 104, 136, or 137, as may be appropriate.

NOTE D: Working funds advanced to nonaffiliated companies and individuals other than investment advances shall be included in account 115.

§ 31.103 Miscellaneous physical prop

erty.

This account shall include the company's investment in physical property other than property the investment in which is includible in accounts 100:1, "Telephone plant in service," 100:2, "Telephone plant under construction." 100:3, "Property held for future telephone use," and 100:4, "Telephone plant acquisition adjustment." It shall include the company's investment in telephone property retired and held for sale: also property such as lighting, water. power, and manufacturing plants, not held incident to the company's telephone operations, and assessments against miscellaneous physical property for the construction of public improvements.

§ 31.104 Sinking funds.

(a) This account shall include the amount of cash, the book cost of securities issued by other companies, and the book or face amount of nominally issued and nominally outstanding securities issued or assumed by the company, and other assets which are held by trustees or by the company's treasurer in a distinct fund, for the purpose of redeeming outstanding obligations. (Note also §§ 31.1-12, 31.1-13, and 31.3-31.)

(b) A separate account shall be kept for each sinking fund under a title which shall designate the obligation in support of which the fund was created.

§ 31.114 Special cash deposits.

This account shall include the amount of cash on special deposit, other than in sinking and other special funds provided for elsewhere, to pay dividends, interest, and other debts, when such payments are due 1 year or less from the date of deposit; the amount of cash deposited to insure the performance of contracts to be performed within 1 year from date of the deposit; and other cash deposits of a special nature not provided for elsewhere. This account shall include the amount of cash deposited with trustees to be held until mortgaged property sold, destroyed, or otherwise disposed of is replaced, and also cash realized from the sale of the company's securities and deposited with trustees to be held until invested in physical property of the com

§ 31.116

Temporary cash investments.

This account shall include the book cost (note also §§ 31.1-11 and 31.1-12) of securities acquired for the purpose of temporarily investing cash, such as time drafts receivable and time loans, bankers' acceptances, United States Treasury certificates, marketable securities, and other similar investments of a temporary character. Securities of affiliated companies included in this account shall be recorded in a subaccount hereunder.

§ 31.117:1 Notes receivable from affiliated companies.

This account shall include the book cost (note § 31.1-12) of demand or time notes, bills and drafts receivable, or other similar evidences (except interest coupons) of money receivable from affiliated companies on demand or within a time not exceeding 1 year from date of issue. (Note also §31.1-11.)

NOTE: Obligations of affiliated companies any part of which matures more than 1 year from date of issue and notes evidencing investment advances shall be included in accounts 101:1, 101:2, 104, 116, 136, or 137, as appropriate.

§ 31.117:2 Other notes receivable.

This account shall include the book cost (note § 31.1-12) not includible elsewhere, of all collectible obligations from nonaffiliated companies and individuals in the form of notes receivable and other similar evidences (except interest coupons) of money receivable on demand or

within a time not exceeding 1 year from date of issue. (Note also § 31.1-11.)

NOTE: Obligations any part of which matures more than 1 year from date of issue, notes evidencing investment advances and notes issued by affiliated companies shall be included in accounts 101:1, 101:2, 102, 104, 116, 117:1, 136, or 137, as appropriate.

$ 31.118 Due from customers and agents.

This account shall be subdivided as follows:

(a) Due from customers and agents. (1) This subaccount shall include amounts due from customers for services rendered or billed and from agents and collectors authorized to make collections from customers. (Note also § 31.1-11.) This subaccount shall be kept in such manner as will enable the company to make the following analysis:

(1) Amounts due from customers who are still receiving telephone service.

(ii) Amounts due from customers whose telephone service has been discontinued and whose accounts are in process of collection.

(2) Collections in excess of amounts charged to this subaccount may be credited to and carried in this account until applied against charges for services rendered or until refunded.

(3) The amount of notes held as security for customers' accounts may be carried in this account pending collection.

(b) Reserve for uncollectible accounts Cr. (1) This subaccount shall be credited with such amounts as may be charged to account 530, "Uncollectible operating revenues-Dr.," to provide for uncollectible accounts included in subaccount 118 (a). (Note also § 31.5-51.) There shall also be credited to this subaccount amounts collected which previously have been written off through charges to this subaccount and credits to subaccount 118 (a).

(2) If this reserve for uncollectible accounts is maintained, there shall be charged to it any amounts covered thereby which have been found to be Impracticable of collection. If such reserve is not maintained, amounts included in subaccount 118 (a) which have been found to be uncollectible shall be charged to account 530, "Uncollectible operating revenues-Dr."

§ 31.120:1 Accounts receivable from affiliated companies.

(a) This account shall include amounts due from affiliated companies on all transactions that are subject to current settlement, except for sales of telephone service at regular rates. There shall be included herein accounts receivable arising from division of toll revenues. (Note also § 31.1-11.)

(b) In the balance-sheet statement there may be included in this account the net amount receivable from companies against each of which there is a net debit balance between this account and account 159:1, "Accounts payable to affiliated companies."

NOTE: If any items included in this account are not actually paid currently they shall be transferred to account 101:2.

§ 31.120:2

Other accounts receivable.

(a) This account shall include all amounts currently due, other than those from affiliated companies, and not provided for in other accounts, such as those for traffic settlements, material and supplies, repairs to telephone plant, matured rents, and interest receivable under monthly settlements on short-term loans, advances, and open accounts. (Note also § 31.1-11.)

(b) In the balance-sheet statement there may be included in this account the net amount receivable from companies against each of which there is a net debit balance between this account and account 159:2, "Other accounts payable."

This account shall include the amount of interest accrued to the date of the balance sheet on bonds, notes, and other commercial paper owned, on loans made, and the amount of dividends receivable on stocks owned. (Note also § 31.1-11.)

NOTE A: These accounts shall not include dividends or other returns on securities issued or assumed by the company and held by or for it, whether pledged as collateral, or held in its treasury, in special deposits, or in sinking and other funds.

NOTE B: Interest receivable under monthly settlements on short-term loans, advances,