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chmidt Construction <br />Notes to Divisional Balance Sheet <br />December 31, 2001 <br />Note 1 -Nature of Business and Significant Accounting Policies <br />The divisional balance sheet of Schmidt Construction (the "Division"), a division of <br />Edw. C. Levy Co. (the "Parent"), includes the accounts of the Division as of <br />December 31, 2001. The corporate staff of the Parent company provides the <br />Division with certain executive, administrative, financial, legal, and general services <br />performed on a centralized basis. The costs of services provided by the Parent <br />company's staff are allocated to the Division. In addition, the Division is allocated a <br />portion of the Parent company's employee fringe benefit cosss and state and local <br />income taxes. <br />The Division extracts and processes natural aggregates, provides trucking services, <br />manufactures asphalt products, and paves roads, parking lots, and other surfaces in <br />and around Colorado Springs, Colorado. <br />Inventories -Inventories are stated at the lower of cost or market. Cost is <br />determined using the first-in, first-out (FIFO) method for substantially all inventory. <br />Property, Plant, and Equipment -Property, plant, and equipment are recorded <br />at cost. Depreciation is computed using the sn-aight-line method for buildings and <br />the double-declining balance method for other assets over the estimated useful lives <br />of the assets. <br />Divisional Equity -Divisional equity is the accumulated earnings of the Division <br />since inception. <br />Self-insurance -The Division and affiliates of the Parent are partially self-insured <br />for workers' compensation. The Division and affiliates of the Parent have obtained <br />specific excess reinsurance coverage for claims in excess of $300,000 per accident. <br />The Division is also self-insured for employee health care coverage. The Division <br />has recorded an accrual of approximately $40,000 at December 3l, 2001 for <br />estimated claims incurred but not reported under both of these plans. <br />Income Taxes -Pursuant to provisions of the Internal Revenue Code, the Parent <br />has elected to be treated as an S Corporation. Generally, the income of an <br />S Corporation is not subject to federa! income tax at the corporate level but rather <br />the stockholders are required to include a pro rata share of the corporation's <br />taxable income or loss in their personal income tax returns, irrespective of whether <br />dividends have been paid. Accordingly, no provision for federal income taxes has <br />been made in the accompanying divisional balance sheet. <br />3 ~ <br />I°rtTora <br />