Reference no: EM13779431

HYDROMAINT, INC.

FOR THE YEARS ENDING DECEMBER 31, 20X4 AND 20X3                                                                                                                                        

(1) Summary of Significant Accounting Policies 

            The accounting and reporting policies of Hydromaint, Inc., follow generally accepted accounting principles and policies.  The following is a summary of the more significant policies. 

(a) Accounts receivable are stated at net realizable value and reflect the actual cash collections expected to be received by the Company.  When considered necessary, management maintains an allowance for bad debts to absorb potential collection losses.  This allowance is based on an evaluation of individual accounts, past collection and loss experience, economic conditions, and other risks.

 (b) Trading securities are marketable equity securities that are bought and held principally for the purpose of selling them in the near term.  These securities are recorded at market value and any unrealized gains or losses are included in earnings in the period they occur.  The market value of these securities is generally based on quoted market prices or dealer quotes. 

(c) Plant property, which includes capitalized leases, is stated at cost less accumulated depreciation.  For financial reporting purposes, depreciation is computed using the straight-line method over periods ranging from five to twenty years. 

(d) Licensing costs are stated at historical cost less accumulated amortization.  These intangible assets are being amortized on a straight-line basis over five years. 

(e) Merchandise and supplies inventories are valued at the lower of cost or market.  Inventory cost is determined using the FIFO method. 

(f) During 20X3, the Company adopted Statement of Financial Accounting Standards No. 132(R), Employers' Disclosures about Pensions and Other Post Retirement Benefits.  The Company has chosen to provide pension benefit disclosures required for public entities. 

(g) Earnings per share has been determined by dividing the appropriate earnings by the weighted average number of common shares outstanding during the year. 

(2) Equity Investment 

            During 20X4, the Company acquired 20 percent of the outstanding common stock of PVCO, a dealer in pumps and valves.  The investment is being accounted for using the equity method of accounting.  The investment exceeded the book value of PVCO’s assets by $164,800 at the date of acquisition.  This excess is primarily attributable to land and buildings held by PVCO.  Consequently, one-half of the excess is being amortized over the estimated remaining life of the building (10 years). Dividends received from PVCO are treated as a return of investment in accordance with SFAS No. 95.

Attachment:- MWS36LIN712FIN.rar