Question

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. Income Statement
Ticket revenues		$ 3,500,000
Stadium rent expense	$2,500,000
Ticket expense	30,000
Promotion expense	80,000
Player salaries	700,000
Staff salaries and miscellaneous	265,000	3,575,000
Net income (loss)		$ (75,000)

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. Income Statement
Stadium rent revenue	$2,500,000
Concession revenue	875,000
Parking revenue	95,000	$3,470,000
Cost of goods sold	270,000
Depreciation expense	90,000
Grounds maintenance expense	410,000
Staff salaries and miscellaneous	200,000	970,000
Net income (loss)		$2,500,000

Required

1. 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?

2. What other pertinent information would you need to provide a specific recommendation regarding players’ salaries?

Answer 1

Refer the below images for the above mentioned questions, in a detailed way of explanation.
Answer: o with common control over related enterprises, a consolidated income statement better portrays economic reality. For example, it is likely that the stadium's concession and paricing revenues would have been less (may be zero) if the team did not play there. Additionally, the $ 2500ooo rent expense does not sent an armis length transaction - Etamilton Hawks Soccer owns 851 of Hauts Stadium. Also given that the is the only sent revenue, it appears that the Stadion is used exclosively for Soccer with its fortones intertwinea with the team - revenues are allocated clearly, $2500000 is Mr. sideline's Statement that all the to the team is without support. sent to the stadium Statement. Searching then " the FASB intra -entity" ASC for Tields " the separate statements" and following relevant support: There are that one for) the is a presumption that consolidated financial Statements more meaningful than Separate finanval statements and they are necessary for a fair presentation when of the entities in the consolidated group directly indirectly has a controlling financial interest in other entities. FASB Asc (pava. 810-10-10-1). AS consolidated financial Statements are based on the assomption that they present the financial position and operating results of a single economic entity, such Statements should not include gain (or) loss on transactions among the entities in the consolidated group. FASB ASC (para 810-10-45-1).

Hamilton Consolidated Hawks Team & Stadium Income Statement Ticket concession parking revenues revenue revenue $ 3500ooo $ 875.00 $ 95000 $4470000 $ 30000 80000 270000 90000 Tracet expense promotion expense COGS Depreciation expense wounds maintenance exp player Salaries Staff salaries & Misc. consolidated Net income * 4 10 000 700 000 465000 $2045000 → $2425000 other pertinent factors include: market values for the * Any available comparisons for the players. stadion. & The market value of any alternative uses for the * invested The amount the owners have The amount the owners have Fair rates of return for the the team and the Stadium. * * in the team. in the stadium. investments in invested owners