Layton & Richardson, P.C. Certified Public Accountants INDEPENDENT AUDITORS' REPORT Stone Lake Condominium Association East Lansing, Michigan i Coolidge Road East Lansing, MI 48823 (517)332-1900 (517) 332-2082 fax Info@LNRCPA.com Merrick A. Richardson. CPA Principal RickgLNRCPA.com Vickie L Crouch, CPA, CGFM Principal Vickic@LNRCPA.com Stephen D. Plumb, JD, CPA Princifid Steve@LNRCPA.COM We have audited the accompanying balance sheet of STONE LAKE CONDOMINIUM ASSOCIATION as of December 31, 2008, and the related statement of income and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stone Lake Condominium Association as of December 31, 2008, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. The 2007 financial statements were compiled by us, and our report thereon, dated March 21, 2008, stated that we did not audit or review those financial statements, and accordingly, expressed no opinion or other form of assurance on them. David Layton, CPA DaveLayton@LNRCPA.com Certified Public Accountants East Lansing, Michigan March 3, 2009
BALANCE SHEETS DECEMBER 31,2008 WITH COMPARATIVE TOTALS FOR DECEMBER 31, 2007 ASSETS OPERATING FUND TOTALS REPLACEMENT 2008 2007 FUND (AUDITED) (UNAUDITED) CURRENT ASSETS Cash and cash equivalents Operating Replacement reserve Accounts receivable (net of allowance for doubtful accounts of $17,000 and $0 for 2008 and 2007, respectively) 36,767 92,526 27,922 36,767 27,922 92,526 101,979 31,525 600 TOTAL ASSETS 129,293 27,922 157,215 $ 134,104 LIABILITIES AND OWNERS' EQUITY LIABILITIES Accounts payable Prepaid member assessments Unearned assessment charges 18,229 34,130 90,000 18,229 34,130 90,000 4,902 26,991 TOTAL LIABILITIES 142,359 142,359 31,893 OWNERS' EQUITY (13,066) 27,922 14,856 102,211 TOTAL LIABILITIES AND OWNERS' EQUITY $ 129,293 27,922 157,215 $ 134,104 See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS AND OWNERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 2008 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED DECEMBER 31, 2007 OPERATPNG FUND REPLACEMENT FUND 2008 (AUDITED) TOTALS 2007 (UNAUDITED) INCOME Maintenance fees Assessments Late fees Interest Miscellaneous TOTAL INCOME 276,000 2,448 325 278,773 $ 90,000 462 90,462 $ 276,000 90,000 2,448 462 325 369,235 $ 264,000 90,000 955 251 355,206 OPERATING EXPENSES Management fees Office expense Service charges Professional fees Building maintenance Windows Siding Concrete and asphalt Drainage Bad debt Painting Doors Roof Gutters Snow removal Lawn care Irrigation Lake maintenance Trees/shrubs/grounds Electricity Utilities Insurance 30,900 1,863 1,100 103,909 12,875 12,000 38,234 3,679 31,341 8,585 11,429 1,569 27,594 212 5,168 21,710 63,464 80,958 30,900 1,863 1,100 103,909 63,464 80,958 12,875 12,000 38,234 3,679 31,341 8,585 11,429 1,569 27,594 212 5,168 21,710 30,000 1,526 149 754 52,763 57,339 21,240 6,247 10,950 2,700 1,971 1,431 4,879 4,100 19,790 13,814 7,528 568 31,096 372 2,401 24,094 TOTAL OPERATING EXPENSES 312,168 144,422 456,590 295,712 NET INCOME (LOSS) BEFORE FUND TRANSFERS (33,395) (53,960) (87,355) 59,494 Funds transfers NET INCOME (LOSS) (50,357) (83,752) 50,357 (3,603) (87,355) 59,494 OWNERS' EQUITY, JANUARY 1 OWNERS' EQUITY, DECEMBER 31 70,686 (13,066) 31,525 $ 27,922 102,211 $ 14,856 42,717 $ 102,211 See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN FUND BALANCE FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 OPERATING REPLACEMENT FUND FUND TOTAL Fund balance, Janaury 1,2007 $ 11,408 $ 31,309 $ 42,717 Excess of revenues over expenses 59,278 216 59,494 Fund balance, December 31,2007 70,686 31,525 102,211 Deficiency of revenues over expenses (33,395) (53,960) (87,355) Transfers between funds - net (50,357) 50,357 Fund balance, December 31,2008 $ (13,066) $ 27,922 $ 14,856 See accompanying notes to financial statements.
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2008 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED DECEMBER 31, 2007 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities (Increase) decrease in assets Accounts receivable Increase (decrease) in liabilities Accounts payable Prepaid members assessments NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES CASH, JANUARY 1 CASH, DECEMBERS! OPERATING FUND (83,752) (1,926) 13,327 7,139 (65,212) 101,979 REPLACEMENT FUND (3,603) 31,525 36,767 $ 27,922 2008 (AUDITED) TOTALS (3,603) $ (87,355) $ (1,926) 13,327 7,139 (68,815) 133,504 64,689 $ 2007 (UNAUDITED) 59,494 1,201 (44,141) 6,368 22,922 110,582 133,504 See accompanying notes to financial statements.
THIS PAGE INTENTIONALLY BLANK
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 AND 2007 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Stone Lake Condominium Association is a homeowners' association incorporated in the State of Michigan. The Association is responsible for the operation and maintenance of the common property within the development. The development consists of 100 residential units in East Lansing, Michigan. Method of Accounting The financial statements of the Association are reported on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles for corporations. Assessments Monthly fees and periodic assessments and accounts receivable are collected from members. The monthly fees are recognized as revenue in the period they are billed to co-owners. Fund Accounting To ensure the observance of limitations and restrictions on the use of financial resources, the Association maintains its accounts using fund accounting. Financial resources are classified for accounting purposes in either the Operating Fund, for general operations, or the Replacement Fund, for future major repairs and replacements. Income Taxes In 2008 and 2007, the Association elected to file as a homeowners' association in accordance with Internal Revenue Service (IRS) Code section 528, using form 1120-H. Under that section, the Association excludes from taxation exempt function income, which generally consists of revenue from uniform assessments to owners. Estimates The preparation of financial statements in conformity with U.S. 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Equivalents For purposes of the statement of cash flows, the Association considers all highly liquid investments, with a maturity of three months or less when purchased, to be cash equivalents.
NOTES TO FINANCIAL STATEMENTS - Concluded DECEMBER 31, 2008 AND 2007 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concluded Short-Term Investments Short-term investments consist of certificates of deposit with maturities in excess of three months when purchased. Comparative Financial Information The financial information presented for the year ended December 31, 2007 is presented for comparative purposes and is not intended to be a complete financial statement presentation. NOTE 2: FUTURE MAJOR REPAIRS AND REPLACEMENTS The rules established by the State of Michigan require that 10% of the annual budget be set aside for future repairs and replacements. There is no requirement that those funds be supplemented each year. The Association has a reserve account for that purpose. The balance in that account was $27,922 and $31,535 at December 31, 2008 and 2007, respectively. Those balances are in excess of the required amounts, and account is invested in an interest bearing account. In addition, the Association has accumulated other funds for future maintenance requirements. These funds are kept in a separate checking account and major maintenance costs are paid from that account. Other maintenance costs, some of which are significant, are paid from the operating account. In 2002, a study was conducted to estimate the remaining useful lives and replacement cost of the components of common property for which the Association is responsible. That study estimated that in the period through 2032, the Association would possibly spend $2,000,000 for maintenance and replacement of common items including doors, driveways, garages, gutters and downspouts, roofs, siding and windows. In 2008 and 2007, the Association spent approximately $300,000 and $280,000, respectively, for the maintenance of such things. NOTE 3: CASH AND CASH EQUIVALENTS At December 31, 2008 and 2007, the book value of the Association's demand deposits was $64,689 and $133,504, respectively, with a corresponding bank balance of $64,701 and $143,086, respectively. Qualifying deposits are insured by the FDIC up to $250,000 and $100,000 for 2008 and 2007, respectively. Of the bank balance, $64,701 for 2008 and approximately $100,000 for 2007 is insured and the remaining balance is uninsured and unco 1 lateral ized.
Layton & Richardson, P.C. Certified Public Accountants Board of Directors Stone Lake Condominium Association East Lansing, Michigan We have audited the financial statements of Stone Lake Condominium Association for the period ended December 31, 2008, and have issued our report thereon dated March 3, 2009. Professional standards require that we provide you with the following information related to our audit. Our Responsibility under U.S. Generally Accepted Auditing Standards 1000 Coolidge Road East Lansing, MI 48823 (517) 332-1900 (517) 332-2082 fax Info@LNRCPA.com As stated in our engagement letter dated January 29, 2009, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. As part of our audit, we considered the internal control of Stone Lake Condominium Association. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. Merrick A. Richardson, CPA Principal Rick@LNRCPA.com As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed test of Stone Lake Condominium Association's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. Vickie L. Crouch, CPA, CGFM Principal Vickie@LNRCPA.com Planned Scope and Timing of the Audit Stephen D. Plumb, JD, CPA Principal Steve@LNRCPA.COM Significant Audit Findings David Layton, CPA DaveLavton@LNRCPA.com We performed the audit according to the planned scope and timing previously communicated to you in our meeting about planning matters on November 17, 2008. Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by Stone Lake Condominium Association are described in Note One to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the period ended December 31, 2008. We noted no transactions entered into by the Association during the period for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. No significant estimates are included in the financial statements.
Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate to the financial statements taken as a whole. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, financial accounting, reporting, or auditing matter that could be significant to the financial the auditor's report. We are pleased to report that no such disagreements arose during the audit. as a financial concerning a statements or course of our Management Representations We have requested certain representations from management that are included in the management representation letter dated March 3, 2009. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Association's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Association's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. This information is intended solely for the use of management, and is not intended to be and should not be used by anyone other than these specified parties. Certified Public Accountants March 3, 2009 East Lansing, Michigan