FINANCIAL STATEMENTS December 31, 2016
[ADDRESS] OWNERS CORPORATION | [ACCOUNTING FIRM] Certified Public Accountants
TABLE OF CONTENTS
Report Letter – page 3
Statement of Assets, Liabilities and Stockholders’ Equity – Income Tax Basis – page 5
Statement of Revenues and Expenses – Income Tax Basis – page 6
Notes to Financial Statements – page 7
To the Stockholders of [ADDRESS] OWNERS CORPORATION
Independent Auditor’s Report
We have audited the accompanying financial statements of [ADDRESS] OWNERS CORPORATION which comprise the statements of Assets, Liabilities and Stockholders’ Equity – Income Tax Basis as of December 31, 2016, and the related statements of Revenues and Expenses – Income Tax Basis for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with the basis of accounting the Company uses for income tax basis purposes. This includes determining that the income tax basis of accounting is an acceptable basis for the preparation of the financial statements in the circumstances. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Our 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 of America. 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 in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. 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 are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of [ADDRESS] CORPORATION as of December 31, 2016, and the results of its operations for the year then ended, in accordance with the basis of accounting the Company uses for income tax purposes described in Note 2.
The Company has not presented the supplementary information about the estimates of future costs of major repairs and replacements that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Financial Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by the missing information.
NOTES TO FINANCIAL STATEMENTS December 31, 2016
Note 1. The Corporation
[ADDRESS] CORPORATION (“The Corporation”) was incorporated in New York in May, 1984. Operations commenced in July, 1985, when the property was converted to cooperative ownership. The Corporation qualifies as a cooperative housing corporation under Section 216 of the Internal Revenue Code. The Corporation’s shares have been issued representing 8 tenant shareholders’ units represented by 624 shares.
Note 2. Basis of Reporting
The accompanying financial statements have been prepared on the cash method of accounting used for federal income tax purposes. Consequently, certain revenues and expenses are recognized in the determination of income in different reporting periods than they would be if the financial statements were prepared in conformity with generally accepted accounting principles.
Note 3. Land, Building and Improvements
The building is being depreciated on the straight-line method over 27.5 years. Expenditures for major improvements and betterments to fixed assets are capitalized, and expenditures for repairs and maintenance are expensed as incurred.
The property was acquired in a tax free exchange in accordance with Section 351 of the Internal Revenue Code. Consequently, the Corporation’s tax basis in the property for income tax depreciation purposes is the sponsor’s basis, increased by the amount of gain recognized by the sponsor in the exchange.
Note 4. Mortgage Payable
The mortgage was refinanced in 2003. The prior mortgage with the New York Community Bank ($68,785 principal balance) was replaced by a new mortgage with the same bank in the amount of $80,000 on April 31, 2003. The new mortgage payable, secured by the land, buildings and improvements, is payable in equal monthly installments of $836.42, consisting of interest at the rate of 5.75 percent per annum, with the balance of the payment applied to the unpaid principal balance.
This amount does not include any monthly escrow due. The mortgage is for a term of fifteen years. Assuming that the Corporation has made all of the payments, the mortgage will be fully paid off on April 4, 2019.
Note 5. Maintenance Charges
Maintenance charges assessed to the tenant-shareholders are intended to cover operating expenses of the building, as well as amortization of the mortgage debt. Accordingly, the portion of maintenance used for amortization of the mortgage is added to the stockholders’ equity as additional paid-in-capital.
Note 6. Future Major Repairs and Replacements
The Corporation has not conducted a study to determine the remaining useful lives of the components of the common property and current estimates of the costs of major repairs and replacements that may be required in the future. When replacement funds are needed to meet future needs for major repairs and replacements, the Corporation may have the right to borrow, utilize available cash, increase maintenance charges, pass special assessments, or delay repairs and replacements until funds are available. The effect on future assessments has not been determined at this time.