Which of the following is/are true about "compensating balances?"
I. They are reserve balances maintained for emergency spending requirements.
II. If compensating balances are legally restricted, they must be segregated on the balance sheet.
III. Compensating balances are overstated if "floats" are included as part of the cash.
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A. B. C. D.Explanation
Compensating Balances are cash balances in the form of demand deposits which are used to satisfy existing borrowing arrangements and assure a good credit standing. They are not reserves maintained for emergencies. Unrestricted balances are disclosed in footnotes; however, if they are legally restricted for specific purposes, they must be separately presented in the balance sheet.