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<br />o <br /> <br />o. <br /> <br />o <br /> <br />Ceres Environmental Senices, Inc. <br /> <br />NOTES TO FINANCIAL STATEMENTS <br /> <br />1. <br /> <br />SUMMARY OF SIGNlFICANT ACCOUNTING POLICIES (Continued) <br />Property and Depreciation (Continued) <br />Depreciation is computed using the straight~line method over the following estimated service lives: <br /> <br />Tvoe of Asset <br />Construction equipment <br />Office furniture and equipment <br />Leasehold improvements <br /> <br />Lives <br />3 to 10 Years <br />5 to 15 Years <br />10 to 40 Years <br /> <br />Income Taxes <br />The Company elected to be taxed as an S corporation, whereby all taxable income or loss flows through <br />to the stockholder to be taxed at the individual level. Therefore, no provision for income taxes has been <br />made. <br /> <br />The Company declares dividends to cover individual income taxes on corporate earnings passed through <br />to the stockholder. <br /> <br />Reclassification <br />Administrative charges have been reclassified on the December 31, 2005 financial statements from <br />general and administrative expenses to other income to confOlm to the December 31, 2006 classification. <br />There was no effect on net income or retained earnings as previously reported. <br /> <br />2. <br /> <br />CONCENTRATIONS OF RISK AND FINANCIAL INSTRUMENTS <br />Financial instruments that potentially subject the Company to significant concen~tions of credit risk <br />consist principally of cash and cash equivalents and accounts receivable. <br /> <br />Cash and Cash Equivalents <br />The Company maintains money market funds that are not insured by the Federal Deposit Insmance <br />Corporation (FDIC). At December 31, 2006, amounts 011 deposit in money market funds totaled <br />approximately $63,200,000. In addition, amounts on deposit at three banks exceeded the amount insured <br />by the FDIC by approximately $1,800,000. The Company also invests excess funds overnight in cash <br />equivalents that are not insured by the FDIC. Total cash equivalents in overnight deposits were <br />approximately $21,700,000 at December 31,2006. <br /> <br />Accounts Receivable and Uncollectibles <br />In the normal course of business, the Company grants limited unsecured credit to its customers, which are <br />located throughout the United States. If problems arise in obtaining payment., a lien is filed on the related <br />contract An allowance for doubtful accounts is provided to estimate collection losses based on historical <br />collection experience and review of the elUTent status of existing receivables. <br /> <br />-6- <br />