Board of Governors of the Federal Reserve System

Data Dictionary

Item Number 2715

Call confidentiality applies to FFIEC 031/041.

Data Description:

EQUITY METHOD:

Increases in the investment (debits to item 2715) will result from:

1. Purchase of stock (including cost in excess of par value);

2. The institution's share of the subsidiary's net income, which is included in income in item 4045   "(Net Income (Loss) from Service Corporations/Subsidiaries)"; and

3. Capital contributions.

Decreases in the investment (credits to item 2715) will result from:

1. Sale of stock;

2. The institution's share of the subsidiary's net loss, which is reported in item 4045 "(Net Income   (Loss) from Service Corporations/Subsidiaries)"; and
The accounting method used to report the investment in service corporations/subsidiaries is determined by the parent's percentage of ownership. If the reporting institution owns 20 percent or more of the voting stock of a service corporation or other subsidiary, the total investment reported on this line must be accounted for by the equity method of accounting as required by GAAP in APB Opinion No.18, "The Equity Method of Accounting for Investments in Common Stock." Investments of less than 20 percent of the voting stock of a service corporation/subsidiary are accounted for using the cost method. These methods are discussed below.
Under the equity method of accounting, all intercompany profits and losses must be eliminated as if the subsidiary were consolidated. For example, if an institution sells real estate with a book value of $50 to its service corporation for $75 cash, the parent institution cannot report $25 of profit from the sale, but instead must reduce its equity investment, reported in item 2715, by the amount of the profit net of any tax effect. If the equity investment is less than $1000, reported is a "1" on this line to indicate that it is not zero.

3. Receipt of dividends from the subsidiary.

Net losses reduce the investment balance. If the institution has not made loans to the service corporation/ subsidiary, has not guaranteed either orally or in writing the obligations of the service corporation/subsidiary, and is not otherwise committed to provide future financial support, net losses should be recorded only until the investment balance reaches zero. In most circumstances, however, the reporting institution has made loans to or guaranteed the obligations of the service corporation/subsidiary, and therefore, the investment balance would be reduced below zero when accumulated losses exceed the investment.

The amount of negative investment in item 2715 normally should not exceed the sum of item 0972 "(Secured Loans to Service Corporations/Subsidiaries (Including Joint Ventures of the Service Corporations/Subsidiaries)") plus item 0973 "(Loans from Third Parties to Service Corporations/Subsidiaries Guaranteed by Parent)".

COST METHOD:

The use of this method is appropriate only when the institution owns less than 20 percent of the voting stock of a service corporation. Under the cost method, the investment is not adjusted for net income or loss of the service corporation or for dividends received. Reported is only the reporting institution's investment, at cost, in the stock of service corporations. Cash dividends re-derived should be included in income in item 4045 "(Net Income (Loss) from Service Corporations/Subsidiaries)".

Investments in wholly-owned finance subsidiaries are not reported on this line.