Case : Occidental Petroleum Corporation
Occidental Petroleum Corporation reported the following information in a recent annual report.
Occidental Petroleum Corporation
Consolidated Balance Sheets (in millions)
|
Assets at December 31,
|
Current year
|
Prior year
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$ 683
|
$ 146
|
|
Trade receivables, net of allowances
|
804
|
608
|
|
Receivables from joint ventures, partnerships, and other
|
330
|
321
|
|
Inventories
|
510
|
491
|
|
Prepaid expenses and other
|
147
|
307
|
|
Total current assets
|
2,474
|
1,873
|
|
Long-term receivables, net
|
264
|
275
|
Notes to Consolidated Financial Statements
Cash and Cash Equivalents. Cash equivalents consist of highly liquid investments. Cash equivalents totaled approximately $661 million and $116 million at current and prior year-ends, respectively.
Trade Receivables. Occidental has agreement to sell, under a revolving sale program, an undivided percentage ownership interest in a designated pool of non-interest-bearing receivables. Under this program, Occidental serves as the collection agent with respect to the receivables sold. An interest in new receivables is sold as collections are made from customers. The balance sold at current year-end was $360 million.
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.