Accounting Case Study – Salary Negotiations

| June 9, 2016

Question
Instructions:

Prepare a memo as the CFO of the company. The memo should be directed to the CEO and the Players Associations answering the two questions.

The memo should be written on a Word document including any supporting schedule if required as embedded objects as part of the memo (Word document).

Case Study Details:

The discussion iconANALYSIS AND RESEARCH CASE: ACCOUNTING INFORMATION AND SALARY NEGOTIATIONS

Murphy Patriots Players’ Association and Maxfield, the CEO of Murphy Patriots Baseball Company, ask your help in resolving a salary dispute. Maxfield presents the following income statement to the player representatives.

Murphy Patriots Baseball Company Income Statement

Ticket revenues

$2,000,000

Stadium rent expense

$1,400,000

Ticket expense

25,000

Promotion

35,000

Player salaries

400,000

Staff salaries and miscellaneous

200,000

2,060,000

Net Income (loss)

$(60,000)

Mr. Maxfield argues that the Murphy Patriots really lose money and, until things turn around, a salary increase is out of the question.

As a result of your inquiry, your discover that Murphy Patriots Baseball Company owns 91 percent of the voting stock in Patriots stadium, Inc. This venue is specifically designed for baseball and is where the Patriots play their entire home game schedule. However, Maxfield does not wish to consider the profits of Patriots 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 players. The patriots Stadium income statement appears as follows:

Patriots Stadium Income Statement

Stadium rent revenue

$1,400,000

Concession revenue

800,000

Parking revenue

100,000

$2,300,000

Cost of goods sold

250,000

Depreciation

80,000

Staff salaries and miscellaneous

150,000

480,000

Net Income (loss)

$1,820,000

Required

1. What advice would you provide the negotiating parties regarding the issue of considering the Patriots 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?

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