Financial Statement Analysis Cases
Case I Occidental Petroleum Corporation
Occidental Petroleum Corporation reported the following information in a recent annual report.
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Occidental Petroleum Corporation |
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Assets at December 31, |
Current year |
Prior year |
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Current assets |
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Cash and cash equivalents |
$683 |
$146 |
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Trade receivables, net of allowances |
804 |
608 |
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Receivables from joint ventures, partnerships, and other |
330 |
321 |
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Inventories |
510 |
491 |
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Prepaid expenses and other |
147 |
307 |
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Total current assets |
2,474 |
1,873 |
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Long term receivables, net |
264 |
275 |
Instructions
(a) What items other than coin and currency may be included in “cash”?
(b) What items may be included in “cash equivalents”?
(c) What are compensating balance arrangements, and how should they be reported in financial statements?
(d) What are the possible differences between cash equivalents and short term (temporary) investments?
(e) Assuming that the sale agreement meets the criteria for sale accounting, cash proceeds were $345 million, the carrying value of the receivables sold was $360 million, and the fair value of the recourse liability was $15 million, what was the effect on income from the sale of receivables?
(f) Briefly discuss the impact of the transaction in (e) on Occidental’s liquidity.