13
Page 2
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS'REPORT3-4
BALANCE SHEET5
STATEMENT OF REVENUE EXPENSES AND ASSOCIATION FUNDS6
STATEMENT OF CASH FLOWS7
NOTES TO FINANCIAL STATEMENTS8-10
SUPPLEMENTAL INFORMATION11
INDEPENDENT AUDITORS'REPORT ON SUPPLEMENTAL INFORMATION12
SUPPLEMENTAL INFORMATION ON FUTURE MAJOR REPAIRS13
Page 3
Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements inaccordance with accounting principles generally accepted in the United States of America; this includesthe design, implementation, and maintenance of internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditor's judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluatingthe appropriateness of accounting policies used and the reasonableness of significant accountingestimates made by management, as well as evaluating the overall presentation of the financialstatements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour qualified audit opinion.
Basis for Qualified OpinionWe were unable to obtain written representations from either the Board or the management company of theAssociation.
We were unable to review the subsequent financial documents to determine if there was any significantevent that needed to be disclosed.
We have audited the accompanying financial statements of Redmond Ridge East HomeownersAssociation, which comprise the balance sheet as of December 31, 2015, and the related statements of
revenue and expenses and association funds, and cash flows for the year then ended, and the relatednotes to the financial statements.
Board of DirectorsRedmond Ridge East Homeowners Association
INDEPENDENT AUDITORS' REPORT
ROBERT A. OWENS, C.P.A.A Professional Accountancy Corporation
27792 EL LAZOMEMBER: LAGUNA NIGUEL, CALIFORNIA 92677MEMBER:AMERICAN INSTITUTECALIFORNIA SOCIETYOF CERTIFIED TELEPHONE: (949) 851-5020 • FAX (949) 851-9048OF CERTIFIED PUBLICPUBLIC ACCOUNTANTS E-MAIL: [email protected] Web Site: www.raocpa.comACCOUNTANTS
Page 4
March 23, 2016
Robert A. Owens, CPA A PAC
Qualified Opinion
In our opinion, except for the possible effects of the matters discussed in the Basis for Qualified Opinionparagraph, the financial statements referred to in the first paragraph present fairly, in all material respects,the financial position of Redmond Ridge East Homeowners Association as of December 31, 2015, andthe results of its operations and its cash flows for the year then ended in accordance with accountingprinciples generally accepted in the United States of America.
SEE INDEPENDENT AUDITORS' REPORT AND ACCOMPANYING NOTES
Page 5
617,271
51,627
528,155 $
528,155
-$6,841
- 44.786
140,743 %
89,116
51,627Total Liabilities
Commitments
Association Funds
Total Liabilities And Association Funds
6,841 $
44,786
LIABILITIES AND ASSOCIATION FUNDS
LiabilitiesAccounts Payable
Prepaid Assessments
668,898
5004,509
(20,168)21,852
415,550
528,155 $
(46,831)--
415,550
140,743 $
46,831500
4,509(20,168)21,852
-
$
159,436 $87,219 $CashShort-Term InvestmentsAssessments ReceivableLess: Allowance For Doubtful AccountsPrepaid InsurancePrepaid ExpensesDue From/(Due To) Other Funds
Total Assets
ASSETS
REPLACEMENTFUND
OPERATINGFUND
REDMOND RIDGE EAST HOMEOWNERS ASSOCIATIONBALANCE SHEET
DECEMBER 31, 2015
SEE INDEPENDENT AUDITORS' REPORT AND ACCOMPANYING NOTES
Page 6
617,271528,155 $89,116
559,667
57,604
599,596
2,5391,2018,444
15,0026,848
115,99523,247
2,56018,87910,08211,64716,34110,04182,010
274,760
421,964
106,191
133,664
1,2018,444
--
--
124,019
137,703
(48,587)
465,932
2,539-
15,0026,848
115,99523,2472,560
18,87910,08211,64716,34110,04182,010
150,741
657,200239,855417,345
15,014
24,625
2,486615,075$
2,248237,607$
15,014
24,625
238377,468$
REVENUEAssessmentsInterest Income
Legal Settlement
Other Income
Total Revenue
EXPENSESLandscape MaintenanceManagement FeesAdministrativeLegal And AuditInsuranceBad DebtGeneral MaintenanceReserve StudyElectricityWaterSecurityEducations & CommitteesPlay AreaMonuments & Signage
Property Taxes
Total Expenses
Excess (Deficiency) of Revenue Over Expenses
Association Funds Balance Beginning of Year
Association Funds Balance End of Year
REPLACEMENTFUND
OPERATINGFUND
REDMOND RIDGE EAST HOMEOWNERS ASSOCIATIONSTATEMENT OF REVENUE EXPENSES AND ASSOCIATION FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2015
SEE INDEPENDENT AUDITORS' REPORT AND ACCOMPANYING NOTES
Page 7
46,159
(8,140)
(5,259)968986
97,014 $
(9,177)
-
(50,855) %
(8,140)
3,918968986
$ActivitiesNet Cash Provided By (Used In) Operating
Change In Prepaid Assessments
Change In Accounts PayableChange In Prepaid InsuranceChange In Assessments Receivable
57,604
246,655
(55,832)
302,487
159,436 $
31,754
127,682
36,731
87,219 5
(87,586)
174,805
(36,731)
Cash And Cash Equivalents At End of Year $
Net increase (Decrease) in Cash And CashEquivalents
Cash And Cash Equivalents At Beginning of Year
Cash Flows From Financing Activities:
Interfund Borrowings
(101,991)
46,159
(48,587) $106,191 $Excess (Deficiency) of Revenue Over Expenses
Adjustments To Reconcile Excess (Deficiency) ofRevenue Over Expenses To Net Cash Provided ByOperating Activities:
RECONCILIATION OF EXCESS OF REVENUE OVER EXPENSESTO NET CASH PROVIDED BY OPERATING ACTIVITIES
(101,991)
97,014(50,855)
399,871 $ 237,607 $ 637,478
(450,964) (142,841) (593,805)
238 2,248 2,486
Cash Flows From Operating Activities:
Cash Received From MembersCash Paid To Suppliers of Goods And Servicesinterest Received
Net Cash Provided By (Used In) OperatingActivities
Cash Flows From Investing Activities:
Purchase of Short-Term investments
OPERATING REPLACEMENTFUNDFUND
REDMOND RIDGE EAST HOMEOWNERS ASSOCIATIONSTATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2015
SEE INDEPENDENT AUDITORS' REPORT
Page 8
NOTE2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The books of Redmond Ridge East Homeowners Association are maintained on accrual basis of accountingwith entries made for audit and tax purposes.
Fund Accounting
The Association's governing documents provide certain guidelines for governing its financial activities. To
ensure observance of limitations and restrictions on the use of financial resources, the Associationmaintains its accounts using fund accounting. Financial resources are classified for accounting andreporting purposes in the following funds established according to their nature and purpose:
Operating fund -This fund is used to account for financial resources available for thegeneral operations of the Association.
Replacement fund - This fund is used to accumulate financial resources designated for futuremajor repairs and replacements.
Property and Equipment
Real property and common areas acquired by the original homeowners from the developer are owned bythe individual owners in common and are not capitalized on the Association's financial statements.
Replacements and improvements to the real property and common areas also belong to the owners and arenot capitalized on the Association's financial statements.
Cash Equivalents and Investments
Cash equivalents consist primarily of certificates of deposit and other securities with original maturities of 90days or less. Certificates of deposit and other securities with original maturities over 90 days are classifiedas investments. Cash equivalents and investments are stated at cost, which approximates market value.
Use of Estimates
The Association uses estimates and assumptions in preparing these financial statements in accordancewith generally accepted accounting principles. Those estimates and assumptions affect the reportedamounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reportedrevenues and expenses. Actual results could vary from the estimates that were used.
NOTE1 NATURE OF ORGANIZATION
Redmond Ridge East Homeowners Association was incorporated on October 31, 2007, in the state ofWashington. It is responsible for the operation and maintenance of the common property within thedevelopment, which is located in the city of Redmond, Washington. The development began the year at666 lots and ended at 691 lots. The scheduled build-out level is 721 lots.
REDMOND RIDGE EAST HOMEOWNERS ASSOCIATIONNOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2015
SEE INDEPENDENT AUDITORS' REPORT
Page 9
NOTE 5 ASSESSMENTS
During 2015, assessments were billed at a rate of $ 225.00 per lot per quarter. The rate is budgeted toremain at $ 225.00 per lot per quarter for 2016.
NOTE 4 INCOME TAXES
The Association is a corporation that is potentially taxable on all of its net income, including unspentmember assessments. However, under federal filing elections, the Association may choose to be taxedonly on its net non-membership income, which includes interest income. Homeowners associations are not
required to file tax returns with the State of Washington Board of Tax.
Federal law allows qualifying homeowner associations to file an election, which must be made annually, tobe taxed under special rules. Under this election, income from members (such as assessments) is exempt
from taxation. However, net non-membership income under this election is taxed at a flat rate of 30%. Ifthe Association chooses to file as a regular corporation, it may still exclude from taxation its net membershipincome by making certain elections. Tax at the regular corporate tax rate is generally lower. Some of theseelections, however, have come under IRS attack and certain issues are yet to be clarified. In 2015, theAssociation filed as an exempt corporation for federal taxes with no tax liability.
Regardless of how the Association files its taxes, non-membership income (interest) may not be offset withmembership expenses (such as common area maintenance costs). That is why the Association's taxable
income can be greater than its net income as recorded in the financial statements.
The years open for tax authority examination are 2012 through 2015 for federal purposes.
NOTE 3 REPLACEMENT FUND
The Association's governing documents require funds to be accumulated for future major repairs andreplacements. Accumulated funds are held in separate accounts and are generally not available foroperating purposes. It is the Association's policy to allocate interest earned on such funds to thereplacement fund. Since the actual costs are dependent upon the frequency of occurrence and futurecosts, there is no assurance that this fund is adequate.
A study of the Association's funding program for the replacement of Association common areas, projected toDecember 31, 2015, indicates the Association's ideal cash replacement fund balance was $ 452,555 at thatdate. The study recommends a 2016 contribution to the replacement fund of $ 237,608 ($ 28.66 per lot permonth). The 2016 budgeted contribution is $ 224,700.
The preparation of such a study involves significant estimates by the persons preparing the study, and theseestimates are subject to annual revision for changing prices, circumstances and assumptions. If actualreplacement costs exceed funds available, or where replacement of common areas is necessary where no
fund has been previously established, the Association has the right to increase the monthly assessments,pass special assessments, or delay replacement until funds are available.
REDMOND RIDGE EAST HOMEOWNERS ASSOCIATIONNOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2015(CONTINUED)
April 7, 2016June 24, 2016
February 23, 20156August 4, 2016August 4, 2016
May 13, 2016--
MATURITY DATE
662,205
100,40277,57325,776
100,825100,825
10,149159,43687,219
AMOUNT
$0.55%1.05%0.35%0.55%0.55%0.50%0.30%0.10% $
INTEREST RATE
NOTE 8 CASH AND SHORT-TERM INVESTMENTS
The Association's cash and short-term investment balances as of December 31, 2015, were as follows:
INSTITUTION
Alliance Association BankAlliance Association BankAlliance Association BankMorton Community BankMorton Community BankFoundation BankFoundation BankPulaski Bank
Total
NOTE 9 INITIAL WORKING CAPITAL
Upon purchase of a lot in the development, each owner is assessed a one-time "working capital"contribution in the amount of $985.
NOTE 10 SUBSEQUENT EVENTS
The date to which events occurring after December 31, 2015, the date of the most recent balance sheet,have been evaluated for possible adjustment to the financial statements or disclosure is March 23, 2016,which is the date on which the financial statements were issued.
SEE INDEPENDENT AUDITORS' REPORT
Page 10
NOTE 7 ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Association uses the allowance method of recording bad debts. This method requires an annualprovision for bad debts based on past or industry experience.
NOTE 6 ASSESSMENTS RECEIVABLE
Association members are subject to annual assessments (paid in quarterly installments) to fund theAssociation's operating expenses, future capital acquisitions and major repairs and replacements.Assessments receivable at the balance sheet date represent assessments and other fees due from unitowners. Most owners live within Washington and their ability to pay would be influenced by the localeconomy. The Association's CC & R's provide for various collection remedies for delinquent assessmentsincluding filing of liens on the owner's unit foreclosing on the unit owner, and obtaining judgment on otherassets of the unit owner.
REDMOND RIDGE EAST HOMEOWNERS ASSOCIATIONNOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2015(CONTINUED)
Page 12
March 23, 2016
Robert A. Owens, CPA A PAC
Our report on our audit of the basic financial statements of Redmond Ridge East Homeowners Associationfor the year ended December 31, 2015 appears on page 3. That audit was made for the purpose of formingan opinion on the basic financial statements taken as a whole. Accounting principles generally accepted in
the United States of America require that the information on future major repairs and replacements onpage 13 be presented to supplement the basic financial statements. Such information, although not a partof the basic financial statements, is required by the Financial Accounting Standards Board, who considersit to be an essential part of financial reporting for placing the basic financial statements in an appropriateoperational, economic, or historical context. We have applied certain limited procedures to the requiredsupplementary information in accordance with auditing standards generally accepted in the United Statesof America, which consisted of inquiries of management about the methods of preparing the informationand comparing the information for consistency with management's responses to our inquiries, the basic
financial statements, and other knowledge we obtained during our audit of the basic financial statements.We do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Board of DirectorsRedmond Ridge East Homeowners Association
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION
ROBERT A. OWENS, C.P.A.A Professional Accountancy Corporation
27792 EL LAZOMEMBER: LAOUNA NIGUEL, CALIFORNIA 92677MEMBER:AMERICAN INSTITUTECALIFORNIA SOCIETYOF CERTIFIED TELEPHONE: (949) 851 -5020 • FAX (949) 851 -9048OF CERTIFIED PUBLICPUBLIC ACCOUNTANTS E-MAIL: [email protected] Web Site: www.raocpa.comACCOUNTANTS
SEE INDEPENDENT AUDITORS1 REPORT ON SUPPLEMENTAL INFORMATION
Page 13
As shown above, the study recommends a replacement fund balance of $452,555 as of December 31, 2015 and contributions toreserves of $237,608 during 2016. The Association's replacement fund balance at December 31, 2015 was $528,155 or 116.71% ofthe recommended fund balance.
452,555
7676,000
30,000
3,333
52,750
4,56022,93318,3338,000
18,0005,9502,2005,000
48,960112,000
12,398101,371
237,608 S
$
1,826,088 $
5,75045,00030,000
10,000
224,000
16,15076,00065,00030,00093,60037,00011,00012,500
306,000212,000144,475507,613
i26 years26 years0 years
2 years
1 to 18 years
9 to 13 years9 to 11 years9 to 13 years
22 years19 to 23 years14 to 18 years
4 years3 years
21 years1 to 2 years
16 to 38 years
0 to 23 years $
2016 RecommendedFundingFund
RequirementBalances
EstimatedCurrent
ReplacementCost
EstimatedRemaining
Useful Lives
AsphaltGates/GemceLandscapePedestrian BridgesTrail SystemDrainage/Stormwater SystemMonument SignMailboxesBus SheltersBenchesPicnic TablesTrash Cans
Play Equipment/Chips
Volleyball Court
Dog ParksPicnic ShelterBristol Park Shelter
Components
The board of directors contracted an independent consultant who conducted a September 25, 2015 study, projected to December31, 2015, to estimate the remaining useful lives and replacement costs of the components of common property. Fundingrequirements include an inflation factor of 3% and an interest rate of 1 %.
The following table is based on the study and presents information about the components of common property.
REDMOND RIDGE EAST HOMEOWNERS ASSOCIATIONSUPPLEMENTAL INFORMATION ON FUTURE MAJOR REPAIRS
AND REPLACEMENTSDECEMBER 31, 2015
(UNAUDITED)
