Chesapeake Energy 1998 Annual Report Download - page 65

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Company
The Company is a petroleum exploration and production company engaged in the acquisition, exploration, and
development of properties for the production of crude oil and natural gas from underground reservoirs. The
Company's properties are located in Oklahoma, Texas, Louisiana, Kansas, Montana, Colorado, North Dakota, New
Mexico and British Columbia, Canada.
The Company changed its fiscal year end from June 30 to December 31 in 1997. The Company's results of
operations and cash flows for the six months ended December 31, 1997 (the "Transition Period") are included in
these consolidated fmancial statements.
Principles of Consolidation
The accompanying consolidated imancial statements of Chesapeake Energy Corporation include the accounts of
its direct and indirect wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and
transactions have been eliminated. Investments in companies and partnerships which give the Company significant
influence, but not control, over the investee are accounted for using the equity method.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the fmancial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash Equivalents
For purposes of the consolidated financial statements, the Company considers investments in all highly liquid
debt instruments with maturities of three months or less at date of purchase to be cash equivalents.
Investments in Securities
The Company invests in various equity securities and short-term debt instruments including corporate bonds and
auction preferreds, commercial paper and government agency notes. The Company has classified all of its short-
term investments in equity and debt instruments as trading securities, which are carried at fair value with unrealized
holding gains and losses included in earnings. At December 31, 1998 and 1997, the Company had an unrealized
holding loss of $0 and $2 4 million, respectively, included in interest and other income. At June 30, 1997, the
Company had an unrealized holding loss of $0.6 million included in interest and other income. At June 30, 1996
the Company had no trading securities. Investments in equity securities and limited partnerships that do not have
readily determinable fair values are stated at cost and are included in noncurrent other assets. In determining
realized gains and losses, the cost of securities sold is based on the average cost method.
Inventory
Inventory consists primarily of tubular goods and other lease and well equipment which the Company plans to
utilize in its ongoing exploration and development activities and is carried at the lower of cost or market using the
specific identification method.
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