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Schmidt Construction <br />Notes to Divisional Balance Sheet <br />December 31, 2~7 <br />Note I -Nature of Business and Significant Accounting Policies <br />The divisional balance sheet of Schmidt Construction (the "Division"), a division of Edw. <br />C. Levy Co. (the "Parent"), includes the accounts of the Division as of December 3 I , <br />2007. The corporate staff of the Parent provides the Division with certain executive, <br />administrative, financial, legal, and general services performed on a centralized basis. <br />The costs of services provided by the Parent's staff are allocated to the Division. In <br />addition, the Division is allocated a portion of the Parent's employee fringe benefit costs <br />and state and local 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 and <br />around Colorado Springs, Colorado. <br />Trade Accounts Receivable -Accounts receivable are stated at net invoice amounts. <br />The Division establishes an allowance for doubtful accounts, based on a specific <br />assessment of all invoices that remain unpaid following normal customer payment <br />periods. All accounts or portions thereof deemed to be uncollectible are written off in <br />the period that determination is made. No such allowance was deemed necessary at <br />December 3 I , 2007. At December 3 I , 2007, approximately 23 percent of accounts <br />receivable was due from two customers. Billings for long-term construction contracts <br />are rendered monthly, including the amount of retainage withheld by the customer until <br />contract completion. As a general contractor, the Division withholds similar retainages <br />from each subcontractor. Accounts receivable include approximately $57,000 of unbilled <br />receivables. <br />Inventories -Inventories are stated at the lower of cost or market, with cost <br />determined on the first-in, first-out (FIFO) method for substantially all inventories. <br />Property, Plant, and Equipment -Property, plant, and equipment are recorded at <br />cost. Depreciation is computed using the straight-line method for buildings and the <br />double declining balance method for other assets over the estimated useful lives of the <br />assets. <br />Divisional Equity -Divisional equity is the accumulated earnings of the Division since <br />inception less the allocated portion of the Parent's stockholder distributions and the <br />2003 stockholder redemptions. <br />Income Taxes -Pursuant to provisions of the Internal Revenue Code, the Parent has <br />elected to be taxed as an S Corporation. Generally, the income of an S Corporation is <br />not subject to federal income tax at the corporate level, but rather the stockholders are <br />required to include a pro rata share of the corporation's taxable income or loss in their <br />personal income tax returns, irrespective of whether dividends have been paid. <br />Accordingly, no provision for federal income taxes has been made in the accompanying <br />divisional balance sheet. <br />3 <br />