Financial Statement Analysis

Case: Occidental Petroleum Corporation

Occidental Petroleum Corporation reported the following information in a recent annual report.

Notes to Consolidate 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 $300 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 sales meets the criteria for sale accounting, cash proceeds were $345 million, the carrying value of the receivables sold was $36 million, and the fair value of the recourse liability was $15 million, what was the effect on income from sales of receivables?

f) Briefly discuss the impact of the transaction in (e) on Occidental liquidity.