FINANCIAL STATEMENTS and Supplementary Information. For the Years Ended DECEMBER 31, 2013 AND 2012

Transcription

1 THE BOULDERS AT LA RESERVE CONDOMINIUM ASSOCIATION FINANCIAL STATEMENTS and Supplementary Information For the Years Ended

2 FINANCIAL STATEMENTS CONTENTS Page Independent accountants review report 1 Financial statements: Balance sheets 2 Statements of revenues, expenses and changes in members equity 3 Statements of cash flows 4 Notes to financial statements 5 Supplementary information: Supplementary information on future major repairs and replacements (unaudited) 9

3

4 BALANCE SHEETS ASSETS Cash and cash equivalents - undesignated $ 37,363 $ 26,720 Cash and cash equivalents - designated for future repairs and replacements 478, ,894 Investments 353, ,377 Assessments receivable, net 8,346 8,064 Other receivables 1,467 - Prepaid insurance 1,824 2,180 Prepaid taxes Total assets $ 881,879 $ 798,884 LIABILITIES AND MEMBERS' EQUITY Liabilities Accounts payable and accrued expenses $ 11,083 $ 13,626 Assessments received in advance 16,296 11,029 Deferred revenue 47,000 51,000 Total liabilities 74,379 75,655 Members' equity Undesignated 168,742 96,339 Designated for future repairs and replacements 638, ,890 Total members' equity 807, ,229 Total liabilities and members' equity $ 881,879 $ 798,884 See independent accountants' review report and notes to financial statements. 2

5 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN MEMBERS' EQUITY FOR THE YEARS ENDED Revenues HOA assessments $ 408,077 $ 408,180 Master HOA assessments 56,420 50,858 Interest income 6,877 5,241 Water assessment reimbursement 54,429 38,923 Other income 13,699 15,233 Total revenues 539, ,435 Expenses Administrative 11,599 18,678 Bad debt 5,641 4,757 Employee benefits and payroll taxes 12,868 11,812 Maintenance and repairs 87,919 90,547 Management fees 28,800 28,800 Property insurance 19,433 16,646 Protective services 2,949 3,009 Master HOA assessments 56,333 51,216 Salaries and wages 42,203 41,866 Utilities 133, ,522 Income taxes Major repairs and replacements 53,849 75,621 Total expenses 455, ,997 Excess of revenues over expenses 84,271 58,438 Members' equity, beginning 723, ,791 Members' equity, end of year $ 807,500 $ 723,229 See independent accountants' review report and notes to financial statements. 3

6 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED Cash flows from operating activities: Excess of revenues over expenses $ 84,271 $ 58,438 Adjustments to reconcile excess of revenues over expenses to net cash provided by operating activities: (Increase) decrease in operating assets: Assessments receivable (282) (3,199) Other receivables (1,467) - Prepaid insurance 356 (2,180) Prepaid taxes 597 (649) Deposits - 1,487 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses (2,543) 1,509 Taxes payable - (1,120) Assessments received in advance 5,267 (2,351) Deferred revenue (4,000) (4,000) Total adjustments (2,072) (10,503) Net cash provided by operating activities 82,199 47,935 Cash flows from investing activities: Proceeds from investments - 108,287 Purchases of investments (3,513) (270,109) Net cash used in investing activities (3,513) (161,822) Net increase (decrease) in cash and cash equivalents 78,686 (113,887) Cash and cash equivalents, beginning 437, ,501 Cash and cash equivalents, end of year $ 516,300 $ 437,614 Supplemental disclosures: Cash paid for income taxes $ - $ 2,292 Cash paid for interest $ - $ - See independent accountants' review report and notes to financial statements. 4

7 NOTES TO FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies: Nature of Operations: The Boulders at La Reserve Condominium Association (the Association) is incorporated as a nonprofit corporation in the State of Arizona for the purposes of operating and maintaining the common property of the Association. The Association consists of 240 residential units on approximately acres located outside Tucson, Arizona. The Association began operations in 2006 under the control of the Developer and transferred control to the members in The Association is part of a master area association, La Reserve. La Reserve began operations in 1984 as a nonprofit corporation in the State of Arizona for the purposes of developing the 1198 acres of land into various lots and parcels and to sell and convey such lots and parcels. La Reserve owns the land improvements which serve the complex and, as a result, the members pay an assessment to La Reserve to maintain streets and landscaping outside of the complex. The Association collects the master HOA assessment from each member on behalf of La Reserve and remits payment to La Reserve. Financial Statement Presentation: The financial statements have been prepared on the accrual basis of accounting. Revenue Recognition: Revenues are recognized and reported when earned and when the amount and timing of the receipt of payment can be reasonably estimated. Revenues consist primarily of monthly member assessments. Cash and Cash Equivalents: The Association considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Investments: Investments consist of various certificates of deposit ranging from one to two years. Certificates of deposit are carried at fair market value. Assessments Receivable: Association members are subject to monthly assessments to provide funds for the Association s operating expenses, future capital acquisitions, and major repairs and replacements. Assessments receivable at the balance sheet date represent fees due from unit owners. The Association s policy is to charge late fees and interest when assessments are 30 days or more delinquent. Receivables 70 days or more delinquent are turned over to an outside collection agency. The Association had delinquent assessments of $20,021 and $31,865 at December 31, 2013 and 2012, respectively. The Board provides an allowance for doubtful collections based on a review of outstanding receivables, historical collection information, and existing economic conditions. Any excess assessments at year end are retained by the Association for use in the succeeding year. See independent accountants' review report. 5

8 NOTES TO FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies (continued): Property and Equipment: Although title to the common area within the subdivision has been conveyed to the Association, real property and common areas acquired from the Developer and related improvements to such property are not recorded in the Association s financial statements because those properties are owned by the unit owners in common. The Association capitalizes at cost any personal property to which it has title. Income Taxes: The Association is classified as a nonexempt membership organization for both federal and state income tax purposes. It does not qualify as a tax exempt organization. The Association is subject to specific rulings and regulations applicable to nonexempt membership organizations. In general, the Association is required to separate its taxable income and deductions into membership transactions, non-membership transactions, and capital transactions. The Association is taxed on all net income from non-membership activities reduced only by losses from nonmembership activities for which a profit motive exists. Non-membership income may not be offset by membership losses, and any excess membership deductions may only be carried forward to offset membership income of future tax periods. Any net membership income not applied to a subsequent tax year is subject to taxation. U.S. generally accepted accounting principles prescribe rules for the recognition, measurement, classification, and disclosure in the financial statements of uncertain tax positions taken or expected to be taken in the Association s tax returns. The Board has determined that the Association does not have any uncertain tax positions and associated unrecognized benefits that materially impact the financial statements or related disclosures. Since tax matters are subject to some degree of uncertainty, there can be no assurance that the Association s tax returns will not be challenged by the taxing authorities and that the Association will not be subject to additional tax, penalties, and interest as a result of such challenge. The Association s tax returns remain open for federal income tax examination for three years from the date of filing and four years for the State of Arizona. Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. See independent accountants' review report. 6

9 NOTES TO FINANCIAL STATEMENTS Note 2 Cash and Cash Equivalents: At December 31, 2013 and 2012, cash and cash equivalents consisted of: Checking account undesignated $ 37,363 $ 8,586 Money market undesignated - 18,134 Money market designated 478, ,894 $ 516,300 $ 437,614 The Association places its cash and cash equivalents with various financial institutions. Money market accounts are brokered by the institution among numerous banks to mitigate the risk of balances above the FDIC limit. At times the balances in the Association s accounts may exceed the FDIC insurance limit. The Board does not believe it is exposed to any significant credit risk on cash and cash equivalents. Note 3 Investments The Company classifies its investments into Level 1, Level 2, and Level 3 as defined below: Level 1 Level 2 Level 3 Quoted market prices in active markets for identical assets or liabilities Observable market-based inputs or unobservable inputs that are corroborated by market data Unobservable inputs reflecting the reporting entity s own assumptions The following table sets forth, by level within the fair value hierarchy, a summary of the Company s investments that were measured at fair value for the year ended December 31, 2013: Level 1 Level 2 Level 3 Total Certificates of deposit $ 353,890 $ 353,890 The following table sets forth, by level within the fair value hierarchy, a summary of the Company s investments that were measured at fair value for the year ended December 31, 2012: Level 1 Level 2 Level 3 Total Certificates of deposit $ 350,377 $ 350,377 Note 4 Assessments Receivable: At December 31, 2013 and 2012, assessments receivable consists of the following: Assessments receivable $ 22,346 $ 34,364 Less allowance for doubtful accounts 14,000 26,300 Assessments receivable, net $ 8,346 $ 8,064 Two members comprised 70% of assessments receivable at December 31, 2013, and three members comprised 71% of assessments receivable at December 31, See independent accountants' review report. 7

10 NOTES TO FINANCIAL STATEMENTS Note 5 Future Major Repairs and Replacements: The Association engaged an independent engineering firm that conducted a study in October 2012 to estimate the remaining useful lives and the replacement costs of the common property components. The Association is funding for such major repairs and replacements over the estimated useful lives of the components based on the study s estimates of current replacement costs and considering amounts previously accumulated and held in designated money market and CD accounts (the replacement fund). Actual expenditure, however, may vary from the estimated amounts, and the variation may be material. Therefore, amounts accumulated in the replacement fund may not be adequate to meet future needs. If additional funds are required, the Association has the right to increase regular assessments or levy special assessments, subject to member approval, or it may delay major repairs and replacements until funds are available. Note 6 Commitments: The Association entered into a service agreement (the Agreement) in October 2010 with Comcast of Arizona, Inc. (Comcast) to install, operate, maintain and repair all facilities necessary to transmit broadband services to the Association. The Agreement provides for services for a term of 15 years with an automatic renewal for successive periods of 90 days unless either party shall provide the other with a minimum 60 day notice to terminate. As consideration for entering into the Agreement, Comcast paid the Association a per unit fee of $250, for a total of $60,000. In the event that the Agreement is terminated early, the Association shall refund a portion of the compensation based on the number of years remaining in the term of the Agreement. The Association had deferred revenue of $47,000 and $51,000 related to the Agreement at December 31, 2013 and 2012, respectively. The Association entered into a management agreement with Paul Ash Management Company, LLC (PAM) in March PAM is employed to act as an agent and is to render all services and perform all duties as may be reasonably required in connection with management of the property. The contract is for a term of one year and automatically renews each year for an additional one year term. The contract can be cancelled with a 30 day written notice; however, there is an early termination fee if the contract is terminated prior to the normal termination date. The Association is to pay PAM a monthly fee of $2,400. The Association paid management fees of $28,800 for each of the years ended December 31, 2013 and Note 7 Related Party: The Developer continued to own 43 and 46 units for the years ended December 31, 2013 and 2012, respectively, which are rented to various tenants. Note 8 Concentration: The Developer comprised 18% and 19% of total assessment revenues for the years ending December 31, 2013 and 2012, respectively. Note 9 Subsequent Events: The Association evaluates events or transactions that occur subsequent to year end for potential recognition or disclosure in the financial statements through the date on which the financial statements are available to be issued. The financial statements were approved by the Board and available to be issued on February 22, See independent accountants' review report. 8

11 SUPPLEMENTARY INFORMATION ON FUTURE MAJORS REPAIRS AND REPLACEMENTS (UNAUDITED) DECEMBER 31, 2013 Components useful life (years) remaining useful life (years) current replacement cost Fully Funded Balance RECREATION AREA HVAC Units - Replace (A) 15 0 $ 9,800 $ 9,800 HVAC Units - Replace (B) ,900 2,287 HVAC Units - Replace (C) , Carpet Floor - Replace 8 2 4,350 3,263 Tile Floor - Replace ,450 21,185 Wood Floor - Replace ,250 1,700 Window Curtains - Replace , Interior Chandeliers - Replace ,385 1,177 Wall Pictures - Replace , Furniture - Replace ,750 13,400 Television - Replace 6 0 1,100 1,100 Computers - Replace 4 0 1,270 1,270 Kitchen - Remodel ,500 6,600 Appliances - Replace ,000 4,000 Restrooms - Remodel ,100 2,835 Fitness Equipment - Replace (A) ,200 6,200 Fitness Equipment - Replace (B) ,650 2,920 Fitness Equipment - Replace (C) ,500 2,550 Free Weights - Replace ,425 2,263 Strength Equipment - Replace ,750 6,717 Fitness Mirrors - Replace ,550 5,273 Key Card System - Replace ,500 1,750 Fire Alarm Panel - Replace ,875 1,000 Interior Surfaces - Repaint 8 0 7,300 7,300 Wallpaper - Replace ,650 4,520 Pool Deck - Resurface ,300 7,725 Pool Deck - Seal/Repair 4 3 2, Pool - Resurface ,250 1,225 Spa - Resurface ,000 1,000 Pool Furniture - Replace ,000 31,200 Furniture Cushions - Replace 5 2 4,200 2,520 Pool Fence - Replace ,950 3,768 Pool/Spa Filters - Replace ,050 2,160 Pool Heater - Replace 8 7 3, Spa Heater - Replace 8 4 2,450 1,225 Pool/Spa Pumps - Replace ,450 2, , ,541 See independent accountants' review report. 9

12 SUPPLEMENTARY INFORMATION ON FUTURE MAJORS REPAIRS AND REPLACEMENTS (UNAUDITED) DECEMBER 31, 2013 Components useful life (years) remaining useful life (years) current replacement cost Fully Funded Balance COMMON AREA Decorative Concrete - Replace $ 48,000 $ 30,400 Asphalt - Resurface , ,588 Asphalt - Seal/Repair ,500 7,750 Bollard Lights - Replace ,750 37,810 Mailboxes - Replace ,750 6,975 Block Walls - Repair ,700 6,612 Metal Fence - Replace ,300 14,757 Wood Fence - Replace ,135 1,139 Trash Gates - Replace ,750 2,556 Monument - Refurbish ,250 5,938 Block Walls - Repaint 6 0 6,900 6,900 Metal Fence - Repaint 4 0 3,125 3,125 Carports - Repaint 8 0 8,400 8,400 Carport Roofs - Repair ,150 6, , ,100 UNIT BUILDINGS Wall Lights - Replace ,150 21,043 Metal Rails - Repaint ,000 28,000 Metal Surfaces - Repaint 5 0 7,275 7,275 Stucco Surfaces - Repaint , ,160 Wood Surfaces - Repaint ,650 25,650 Flat Roof - Replace , ,027 Tile Roof - Refurbish , , , ,198 TOTALS $ 1,639,865 $ 1,112,839 70% Recommended minimum funding requirement $ 778,987 Amount currently funded $ 832,827 Percent currently funded 75% See independent accountants' review report. 10