In: Accounting
ANALYSIS AND RESEARCH CASE: ACCOUNTING INFORMATION AND SALARY NEGOTIATIONS
Hamilton Hawks Players’ Association and Mr. Sideline, the CEO and majority owner of Hamilton Hawks Soccer, Inc, ask your help in resolving a salary dispute. Mr. Sideline presents the following income statement to the players’ representatives.
HAMILTON HAWKS SOCCER, INC. |
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Ticket revenues |
$ 3,500,000 |
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Stadium rent expense |
$2,500,000 |
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Ticket expense |
30,000 |
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Promotion expense |
80,000 |
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Player salaries |
700,000 |
|
Staff salaries and miscellaneous |
265,000 |
3,575,000 |
Net income (loss) |
$ (75,000) |
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The players contend that their salaries are below market and a raise is warranted. Mr. Sideline argues that the Hamilton Hawks really lose money and, until ticket revenues increase, a salary hike is out of the question.
As a result of your inquiry, you discover that Hamilton Hawks Soccer Company owns 85 percent of the voting stock in Hawks Stadium, Inc. This venue is specifically designed for soccer and is where the Hawks play their entire home game schedule. However, Mr. Sideline does not wish to consider the profits of Hawks Stadium in the negotiations with the players. He claims that “the stadium is really a separate business entity that was purchased separately from the team and therefore does not concern the players. On top of that, we allocate all the ticket revenues to the team’s income statement."
The Hawks Stadium income statement appears as follows:
HAWKS STADIUM, INC. |
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Stadium rent revenue |
$2,500,000 |
|
Concession revenue |
875,000 |
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Parking revenue |
95,000 |
$3,470,000 |
Cost of goods sold |
270,000 |
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Depreciation expense |
90,000 |
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Grounds maintenance expense |
410,000 |
|
Staff salaries and miscellaneous |
200,000 |
970,000 |
Net income (loss) |
$2,500,000 |
Required
What advice would you provide the negotiating parties regarding the issue of considering the Hawks Stadium income statement in their discussions? What authoritative literature could you cite in supporting your advice?
What other pertinent information would you need to provide a specific recommendation regarding players’ salaries?
Requirement
a.A Common control over related enterprises the consolidated income statement will portrait a better economic reality.It is likely that the stadium concession and parking revenues would have been less if the team does not play over there.Also the $2,500,000 stadium rent expense does not represent an arm length transaction given the fact that the $2500000 is the only revenue .It also appears that the stadium is exclusively being used for soccer.
Searching the FASB ASC for seperate statements and then intra entity yields the following relevant support is that there is a pressumption that consolidated financial statements are more meaningful than seperate financial statements and that they are usually necessary for a fair presentation when one of the entities in the consolidated group directly or indirectly has a controlling financial interest in other entities.FASB ASC (Para 810-10-10-1)
As consolidated financial statements are based on the assumption that they represent the financial position and operating results of a single economic entity such statements should not include gain or loss on transactions among entities in the consolidated group .FASB ASC (Para 810-10-45-1)
HAMILTON HAWK SOCCER INC
Consolidated Income Statement
Ticket revenue $ 3,500,000
Concession revenue $ 875,000 Parking Revenue $95000 $ 4470000 Ticket Expense $30000 Promotion $80000 COGS $270000 Depreciation $90000 Player Salaries $700000 Staff Salaries $200000 $1370000 Consolidated Net Income $3100000 b Requirement Other pertinent factors
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