A company must do which of the following,if a company maintains a compensating balance of cash?
A)Disclose the compensating account arrangement in financial statements.
B)Close out the balance prior to year-end.
C)Tie balances to debt covenants.
D)Provide a lockbox for appropriate line-of-credit draws.

Question

Quizplus · Accepted Answer

If a company maintains a compensating balance of cash, they must disclose the compensating account arrangement in financial statements. This is because compensating balances are considered a financing arrangement and can impact a company's liquidity and financial position. It is important for investors and creditors to be aware of any compensating balance arrangements in order to properly evaluate a company's financial performance. Closing out the balance prior to year-end or tying balances to debt covenants are not necessary actions related to compensating balances. Providing a lockbox for appropriate line-of-credit draws may be a helpful step, but it is not directly related to compensating balances.

A Company Must Do Which of the Following,if a Company