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Note 2 - Summary of Significant Accounting Policies
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Dec. 31, 2011
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| Significant Accounting Policies [Text Block] |
(2)
Summary
of Significant Accounting Policies
(a)
Basis
of Presentation
These
financial statements are presented in accordance with
accounting principles generally accepted in the United States
of America. The most significant accounting
policies include the valuation of real estate and royalty
interests assigned through the 1888 Declaration of Trust and
revenue recognition policies.
(b)
Use
of Estimates
The
preparation of financial statements in accordance with the
accounting principles generally accepted in the United States
of America 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 date of the
financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could
differ from those estimates.
(c)
Revenue
Recognition
Oil and
gas royalties
Oil
and gas royalties (royalties) are received in connection with
royalty interests owned by the Trust. Royalties
are recognized as revenue when crude oil and gas products are
removed from the respective mineral reserve
locations. Royalty payments are generally received
one to three months after the crude oil and gas products are
removed. An accrual is included in accrued
receivables for amounts not received during the month removed
based on historical trends.
The
Trust has analyzed public reports of drilling activities by
the oil companies with which it has entered into royalty
interest leases in an effort to identify unpaid royalties
associated with royalty interests owned by the
Trust. Rights to certain royalties believed by the
Trust to be due and payable may be subject to dispute with
the oil company involved as a result of disagreements with
respect to drilling and related engineering
information. Disputed royalties are recorded when
these contingencies are resolved.
Grazing
lease rentals
The
Trust leases land to the ranching industry for grazing
purposes. Lease income is recognized when
earned. These leases generally require fixed
annual payments and terms range from three to five
years. Lease cancellations are
allowed. Advance lease payments are deferred
(unearned revenue) and amortized over the appropriate
accounting period. Lease payments not paid are
recorded as accrued receivables.
Land
sales
Income
is recognized on land sales during the periods in which such
sales are closed and sufficient amounts of cash down payments
are received using the full accrual method of gain
recognition. For income tax purposes, land sales
are recognized on the installment method. The
sales price of land sales are reflected as income and the
cost (basis) of the respective parcels of land are reflected
as expenses as these parcels of land are not primarily held
as income-producing “operating”
properties.
Interest
income from notes receivable
Interest
income is recognized when earned, using the simple interest
method. Accrued interest not received is reflected
in accrued receivables.
Easements
and sundry income
Easement
contracts represent contracts which permit companies to
install pipe lines, pole lines and other equipment on land
owned by the Trust. Easement income is recognized
when the Trust receives a signed contract and when the Trust
makes available the respective parcel of land to the
grantee.
Sundry
income represents sundry (diverse) leasing arrangements to
companies in a wide array of industries, including:
agricultural, oil and gas, construction, wind power and other
industries. Lease income is recognized when
earned. These leases generally require fixed
annual payments or royalties. Lease terms
generally range from month-to-month arrangements to ten
years. Lease cancellations are allowed.
Advance
lease payments are deferred and amortized over the
appropriate accounting period. Lease payments not
paid are included in accrued receivables.
(d)
Statements
of Cash Flows
Cash
and cash equivalents consist of bank deposit and savings
accounts. The Trust considers all highly liquid debt
instruments with original maturities of three months or less
to be cash equivalents. At times the cash may
exceed federally insured limits. The Trust
maintains its cash and cash equivalents in two large
financial institutions. The Trust monitors the
credit quality of these institutions and does not anticipate
any losses.
Cash
disbursed for income taxes in 2011, 2010 and 2009 was
$10,029,759, $5,652,250, and $2,589,441,
respectively. New loans made by the Trust in
connection with land sales amounted to $174,750, $0, and $0
for the years ended December 31, 2011, 2010 and 2009,
respectively.
(e)
Accrued
Receivables
Accrued
receivables consist primarily of amounts due under oil and
gas royalty leases and unpaid interest on notes receivable
for land sales. Accrued receivables are reflected
at their net realizable value based on historical royalty and
interest receipt information and other factors anticipated to
affect valuation. A valuation allowance is
recorded if amounts expected to be received are considered
impaired. No allowance was considered necessary at
December 31, 2011 and 2010.
(f)
Depreciation
Provision
for depreciation of depreciable assets is made by charges to
income at straight-line and accelerated rates considered to
be adequate to amortize the cost of such assets over their
useful lives, which generally range from three to five
years. Accumulated depreciation as of December 31,
2011 and 2010 is $99,387 and $100,763, respectively.
(g)
Notes
Receivable for Land Sales
Notes
receivable for land sales (notes receivable) consists of
installment notes received as partial payment on land sales
and are reflected at the principal amounts due net of an
allowance for loan losses, if any. The Trust
generally receives cash payments on land sales of 25% or
more. Thereafter, annual principal and interest payments are
required by the Trust. Notes receivable bear
interest rates ranging from 7.0% to 9.0% as of
December 31, 2011 and are secured by first lien deeds of
trust on the properties sold. The weighted average interest
rate is 7.2% as of December 31, 2011. The annual
installments on notes are generally payable over terms of 10
to 15 years. There is no penalty for prepayment of principal,
and prepayments in 2011, 2010 and 2009 were $2,683,841,
$60,417, and $665,604, respectively. The interest rates on
notes receivable are considered comparable with current rates
on similar land sales and, accordingly, the carrying value of
such notes receivable approximates fair value.
Management
of the Trust monitors delinquencies to assess the propriety
of the carrying value of its notes
receivable. Accounts are considered delinquent
thirty days after the contractual due dates. At
the point in time that notes receivable become delinquent,
management reviews the operations information of the debtor
and the estimated fair value of the collateral held as
security to determine whether an allowance for losses is
required. There was no allowance for uncollectible notes
receivable at December 31, 2011 and 2010.
Three
customers represented approximately 84% of notes receivable
at December 31, 2011 and 86% at December 31, 2010.
The
maturities of notes receivable for each of the five years
subsequent to December 31, 2011 are:
(h)
Real
Estate Acquired
While
the Trust is generally not a purchaser of land, parcels are
purchased from time to time at the discretion of the
Trustees. Newly acquired real estate is recorded
at cost.
Real
estate acquired through foreclosure is recorded at the
aggregate of the outstanding principal balance, accrued
interest, past due ad valorem taxes, and other fees incurred
relating to the foreclosure.
Real
estate acquired is carried at the lower of cost or
market. Valuations are periodically performed or
obtained by management whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. Impairments, if any, are recorded by
a charge to net income and a valuation allowance if the
carrying value of the property exceeds its estimated fair
value. Minimal, if any, real estate improvements
are made to land.
(i)
Real
Estate and Royalty Interests Assigned Through the 1888
Trust Indenture
The
fair market value of the Trust’s land and royalty
interests was not determined in 1888 when the Trust was
formed; therefore, no value is assigned to the land, town
lots, royalty interests, Certificates of Proprietary
Interest, and Sub-share Certificates in Certificates of
Proprietary Interest in the accompanying balance sheets.
Consequently, in the statements of income, no allowance is
made for depletion and no cost is deducted from the proceeds
of original land sales. Even though the 1888 value of real
properties cannot be precisely determined, it has been
concluded that the effect of this matter can no longer be
significant to the Trust’s financial position or
results of operations. For Federal income tax purposes,
however, deductions are made for depletion, computed on the
statutory percentage basis of income received from
royalties. Minimal, if any, real estate
improvements are made to land.
(j)
Net
Income per Sub-share
The
cost of Sub-share Certificates purchased and retired is
charged to net proceeds from all sources. Net income per
Sub-share Certificate is based on the weighted average number
of Sub-share Certificates in Certificates of Proprietary
Interest and equivalent Sub-share Certificates of Proprietary
Interest outstanding during each period (9,336,998 in 2011,
9,679,921 in 2010 and 10,018,028 in 2009).
(k)
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
When
tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the
taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of the
position that would be ultimately sustained. The
benefit of a tax position is recognized in the financial
statements in the period during which, based on all available
evidence, management believes it is more likely than not that
the position will be sustained upon examination, including
the resolution of appeals or litigation processes, if
any. Tax positions taken are not offset or
aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are
measured as the largest amount of tax benefit that is more
than 50 percent likely of being realized upon settlement with
the applicable taxing authority. The portion of
the benefits associated with tax positions taken that exceeds
the amount measured as described above is reflected as a
liability for unrecognized tax benefits in the accompanying
balance sheet along with any associated interest and
penalties that would be payable to the taxing authorities
upon examination. The liability for unrecognized
tax benefits is zero at December 31, 2011 and 2010.
(l)
Recent
Accounting Pronouncements
In
January 2010, the FASB issued ASU No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820) — Improving
Disclosures about Fair Value Measurements (”ASU
2010-06”). This update requires the
following new disclosures: (i) the amounts of significant
transfers in and out of Level 1 and Level 2 fair value
measurements and a description of the reasons for the
transfers; and (ii) a reconciliation for fair value
measurements using significant unobservable inputs (Level 3),
including separate information about purchases, sales,
issuances, and settlements. The update also
clarifies existing requirements about fair value measurement
disclosures and disclosures about inputs and valuation
techniques. The new disclosures and clarifications
of existing disclosures were effective for interim and annual
reporting periods beginning after December 15, 2009, except
for the reconciliation of Level 3 activity, which was
effective for the Company in the first quarter of
2011. Adoption of this guidance had no effect on
the Company’s results of operations, financial position
and cash flows.
In
June 2011, the FASB issued Accounting Standards Update No.
2011-05, “Comprehensive
Income (Topic 220): Presentation of Comprehensive
Income” (“ASU
2011-05”). ASU 2011-05 amends existing
guidance by allowing only two options for presenting the
components of net income and other comprehensive income: (1)
in a single continuous financial statement, statement of
comprehensive income or (2) in two separate but consecutive
financial statements, consisting of an income statement
followed by a separate statement of other comprehensive
income. ASU No. 2011-05 requires
retrospective application, and it is effective for fiscal
years beginning after December 15, 2011. We will
adopt the provisions of ASU 2011-05 in the first quarter of
2012, and are currently evaluating which presentation option
for the components of net income and other comprehensive
income we will use.
No
other effective or pending accounting pronouncements are
expected to affect the Trust.
(m)
Comprehensive
Income (Loss)
Comprehensive
income (loss) consists of net income and other gains and
losses affecting capital that, under accounting principles
generally accepted in the United States of America, are
excluded from net income.
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