Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Policies

Principles of Consolidation

Principles of Consolidation-The consolidated financial statements include the accounts of Chicago Rivet & Machine Co. and its wholly-owned subsidiary, H & L Tool Company, Inc. (“H & L Tool”).  All significant intercompany accounts and transactions have been eliminated.

Revenue Recognition

Revenue Recognition-Revenues from product sales are recognized upon shipment and an allowance is provided for estimated returns and discounts based on experience.  Cash received by the Company prior to shipment is recorded as deferred revenue.  The Company experiences a certain degree of sales returns that varies over time.  The Company is able to make a reasonable estimation of expected sales returns based upon history.  The Company records all shipping and handling fees billed to customers as revenue, and related costs as cost of sales, when incurred.

Credit Risk

Credit Risk-The Company extends credit on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry.  The Company has a concentration of credit risk primarily within the automotive industry and in the Midwestern United States.  The Company has established an allowance for accounts that may become uncollectible in the future.  This estimated allowance is based primarily on management's evaluation of the financial condition of the customer and historical experience.  The Company monitors its accounts receivable and charges to expense an amount equal to its estimate of potential credit losses.  The Company considers a number of factors in determining its estimates, including the length of time its trade accounts receivable are past due, the Company's previous loss history and the customer's current ability to pay its obligation.  Accounts receivable balances are charged off against the allowance when it is determined that the receivable will not be recovered.

Cash and Cash Equivalent and Certificates of Deposit

Cash and Cash Equivalents and Certificates of Deposit-The Company considers all highly liquid investments, including certificates of deposit, with a maturity of three months or less when purchased to be cash equivalents.  Certificates of deposit with an original maturity of greater than three months are separately presented at cost which approximates market value.  The Company maintains cash on deposit in several financial institutions.  At times, the account balances may be in excess of Federal Deposit Insurance Corporation insured limits.

Fair Value of Financial Instruments

Fair Value of Financial Instruments-The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, certificates of deposit, accounts receivable and accounts payable approximate fair value based on their short term nature.

Inventories

Inventories-Inventories are stated at the lower of cost or net realizable value, cost being determined by the first in, first out method.  The value of inventories is reduced for estimated excess and obsolete inventories based on a review of on-hand inventories compared to historical and estimated future sales and usage.

Property, Plant and Equipment

Property, Plant and Equipment-Properties are stated at cost and are depreciated over their estimated useful lives using the straight line method for financial reporting purposes.  Accelerated methods of depreciation are used for income tax purposes.  Direct costs related to developing or obtaining software for internal use are capitalized as property and equipment.  Capitalized software costs are amortized over the software’s useful life when the software is placed in service.  The estimated useful lives by asset category are:

Asset Category	Estimated Useful Life
Land improvements……………..	15 to 25 years
Buildings and improvements……	10 to 35 years
Machinery and equipment………	7 to 15 years
Capitalized software costs………	3 to 5 years
Other equipment…………………	3 to 15 years

The Company reviews the carrying value of property, plant and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.  In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets.  There were no triggering events requiring assessment of impairment as of December 31, 2015 and 2014.

When properties are retired or sold, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is recognized in current operations.  Maintenance, repairs and minor betterments that do not improve the related asset or extend its useful life are charged to operations as incurred.

Income Taxes

Income Taxes-Deferred income taxes are determined under the asset and liability method.  Deferred income taxes arise from temporary differences between the income tax basis of assets and liabilities and their reported amounts in the financial statements.

The Company applies a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions.  In the first step of the two-step process, the Company evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.  In the second step, the Company measures the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.  As of December 31, 2015 and 2014, the Company determined that there are no uncertain tax positions with a more than 50% likelihood of being realized upon settlement.

The Company classifies interest and penalties related to unrecognized tax benefits as a component of income tax expense.  There were no such expenses in 2015 or 2014.

The Company’s federal income tax returns for the 2012 through 2014 tax years are subject to examination by the Internal Revenue Service (“IRS”).  While it may be possible that a reduction could occur with respect to the Company’s unrecognized tax benefits as an outcome of an IRS examination, management does not anticipate any adjustments that would result in a material change to the results of operations or financial condition of the Company.

No statutes have been extended on any of the Company’s federal income tax filings. The statute of limitations on the Company’s 2012, 2013 and 2014 federal income tax returns will expire on September 15, 2016, 2017 and 2018, respectively.

The Company’s state income tax returns for the 2012 through 2014 tax years are subject to examination by various state authorities with the latest closing period on October 31, 2018.  The Company is currently not under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.

Segment Information

Segment Information-The Company reports segment information based on the internal structure and reporting of the Company’s operations.

Net Income Per Share

Net Income Per Share-Net income per share of common stock is based on the weighted average number of shares outstanding of 966,132 in 2015 and 2014.

Use of Estimates

Use of Estimates-The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes.  Significant items subject to estimates and assumptions include depreciable lives, deferred taxes and valuation allowances for accounts receivable and inventory obsolescence.  Actual results could differ from those estimates.

Reclassifications

Reclassifications-Certain items in 2014 have been reclassified to conform to the presentation in 2015.  These changes have no effect on net income or the financial position of the Company.

Recent Accounting Pronouncements

Recent Accounting Pronouncements-In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (”ASU”) No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.”  Under ASU 2015-11, inventory will be measured at the lower of cost and net realizable value and other options that currently exist for market value will be eliminated.  ASU 2015-11 defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  The standard will be effective for periods beginning after December 15, 2016, including interim periods within that reporting period.  The Company has not yet evaluated the impact of the adoption of this ASU on the consolidated financial statements.

In November 2015, the FASB issued an ASU No. 2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”).  Under current GAAP, deferred income tax assets and liabilities are separated into current and noncurrent amounts in the balance sheet.  ASU 2015-17 requires all deferred assets and liabilities be classified as noncurrent in the balance sheet.  The standard will be effective for periods beginning after December 15, 2016, including interim periods within that reporting period.  The impact of adopting this ASU will be a reclassification of the current deferred income tax asset to the long-term deferred income tax liability on the consolidated balance sheets.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides guidance for revenue recognition.  This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets.  The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance.  The guidance permits two methods of transition upon adoption: full retrospective and modified retrospective.  Under the full retrospective method, prior periods would be restated under the new revenue standard, providing a comparable view across all periods presented.  Under the modified retrospective method, prior periods would not be restated.  Rather, revenue and other disclosures for periods prior to the effective date would be provided in the notes to the financial statements as previously reported under the current revenue standard.  In August 2015, the FASB issued final revised guidance that defers the effective date of the revenue recognition standard to be for annual and interim periods beginning after December 15, 2017.  The Company is currently evaluating both the effect of adopting this new accounting guidance and determining the appropriate method of transition it will use to apply the new standard.  It has not yet determined the impact, if any, that the implementation of this guidance will have on its consolidated financial statements.