Annual Rept 2015.publisher. full report

Frenchman’s Creek, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 1.

Nature of Organization and Significant Accounting Policies

Nature of Organization: Frenchman’s Creek, Inc. (the “Association”), a member-owned club and property owners association is a “corporation not-for-profit” under the laws of the State of Florida. The Association, located in Palm Beach Gardens, Florida operates and maintains the common areas of the Frenchman’s Creek community. The common areas are comprised of common area land, clubhouse, a beach club located in Juno Beach, Florida, two golf courses, roads, canals and ponds, gate and a guardhouse. The community includes town homes, patio homes, villas and estate homes totaling 607 units. Upon purchasing a residence in the Frenchman’s Creek community, property owners become members of the Association. Membership certificates are redeemed in conjunction with the sale of their home. Members are allowed to retain their membership for a period of one year after the sale of their home should they choose, but are required to purchase a new home in the community within 12 months of the sale. Member- ship terms and conditions are more fully described in the Association’s Governing Documents. Frenchman’s Creek Realty, Inc., the subsidiary, was organized as a corporation under the laws of the State of Florida as a real- estate referral company to refer leads of potential buyers of homes located within the boundaries of Frenchman’s Creek to preferred real-estate agents in exchange for a referral fee. All policy decisions are approved by the Association’s Board of Governors. Principles of Consolidation: The consolidated financial statements include the accounts of Frenchman’s Creek, Inc. and its wholly- owned subsidiary, Frenchman’s Creek Realty, Inc. (“Realty”). All significant intercompany balances and transactions have been eliminated in consolidation. Accounting Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 reve- nues and expenses during the reporting period. Actual results could differ from those estimates. Derivatives: The Association is exposed to certain risks relating to its ongoing operations. The Association uses a derivative instru- ment to manage its interest rate risk. An interest rate swap was entered into to manage interest rate risk associated with the Associ- ation’s floating rate long-term borrowing. The interest expense is capped at 6% provided that the Association remains in the swap agreement to term. The derivative is measured at fair value and is recognized as either an asset or liability in the consolidated bal- ance sheets. The Association recognizes additional financing income or expense in the consolidated statements of revenues and expenses and changes in fund balances related to the net change in the carrying amount of the swap agreement for the year. Fair Value of Financial Instruments: The carrying amount of cash, certificates of deposit, accounts receivable and accounts payable approximates fair value due to the short-term maturities of these instruments. The carrying value of the long-term debt approxi- mates fair value because the interest rate used with this instrument fluctuates with the market rate and is at terms currently available to the Association. The fair value of the interest rate swap agreement is the estimated amount the Association would pay or receive to terminate the swap agreement at the reporting date, taking into account current interest rates and the creditworthiness of the counterparty for assets and creditworthiness of the Association for liabilities. A summary of the Association’s significant accounting policies follows:

2014/2015 Annual Report Page 34