Meadowbrook

To the management of Meadowbrook Corporation:

In this report you will find an explanation of how amounts were determined for your income before tax. We also calculated what the carry value of lots B and C should be on your balance sheet. On pages 5 and 6 you will you find a partial income statement, partial balance sheet, and supplementary documentation to support the figures throughout this report. There are also some bolded words throughout the paper where I have included definitions for your reference on page 7.

Revenue for the year 2012 consisted of the sale of lot A in the amount of $800,000. According to the revenue recognition principle, revenue for lots B and C will be recorded during the period in which they are realized or realizable, and in our case this will be when they are sold.

The expenses for the year were the result of several different amounts and calculations. Everything for lot A will end up as an expense on the income statement because the house and lot were sold on December 31, 2012, and when revenue is recognized the corresponding expenses should also be recorded in the same period (matching principle). The majority of expenses for lots B and C were able to be capitalized as carry costs on the balance sheet because those properties are still owned by Meadowbrook and are considered assets.

To be in compliance with the codification, “The capitalized costs of real estate projects shall be assigned to individual components of the project based on specific identification. If specific identification is not practicable, capitalized costs shall be allocated as follows: Land cost and all other common costs including the costs of amenities shall be allocated to each land parcel benefited. Allocation shall be based on the relative fair value before construction” (Codification, 970-360-30-1). We have allocated common costs and amenities between lots A, B, and C. Lot D is an amenity that will be owned by the homeowners’ association made...