Kansas City Zephyrs Baseball Club Case Study Analysis
Stadium Rent:
Two club owners are actually the owners of the stadium therefore according to players that the rent the club pays for the stadium is high. Actually, the rent of the club is low but the owners paid high rentbecause some are of the rentgoes in the pockets of the two owners of the club, which are owners of the stadium. In such a case, it is suggested that Bill should investigate the fair market price of rent. In this case, both are right because paying high rent to lower the EBIT and would provide tax shield, and if the amount of rent is not extremely high so the owners should do this.
On the basis of above analysis, it is said that both parties are right as well as wrong in recording its transactions, however, it seems that the players income statement mostly shows the high accuracy in recording its transactions, therefore, we can say that players income statement is more accurate in comparison to the owners income statement and if the above changes implemented then the Kansas City Zephyrs Baseball Club is profitable.
What is your recommendation regarding the particular accounting disagreements between the owners and the players?
It is recommended that the club should follow the right way in order to record its operations. If they do not do so then it is considered that the club is not recording the fair amount on its statementsthat might harm the reputation of the club. Furthermore, it is also suggested that Bills should define the good accounting method fortheZephyrsBaseballClub which is free from biases. Rather than drawing the conclusion in one’s favor, it is better than Bills should tell the fair accounting rules to both the parties which is beneficial for the club rather than beneficial for the individual party. If Bill simply said that the players' income statement seems to be correct so it might unpleasant for the owners. However, Bills should highlight the good and bad points of recording the transactions of both the parties and also suggest that the club should record its transaction in such manner which provide benefit to the club rather than a single party. Bills also suggested that both the parties should follow the consistent practices and treating the expenses and revenues in the same way(Hermanson).
Looking ahead to the sale of the luxury boxes, how should the Kansas City Zephyrs Baseball Club account for the upfront $250,000 cash payment?
During the year 2006-07 offseason the stadium owners plan to add 25 luxury boxes with the aim to increase the seating capacity. The plan is to pay 250,000 to the club as a down payment and the annual fees will split between the stadium and the club.The owners gain reservation fees and the customers would able to use these boxes for the next five years so the owner is planning to recognize this cash payment as revenue over the five years. According to players, this revenue should be recorded at once at the time of receiving.
In this case, the owners of the company are right, because the life of the revenue is over five years so it should be recorded on per year basis. At the time of receiving, this revenue is recorded as an unearned because the club does not earn at the same time however the club would get the benefits from this revenue over the period of time, which is why the club should record this revenue partially in the income statement on per year basis and should recognize this revenue over the next five years. The owners are using matching principle in this case but the owners are not coherent or consistent while recording its revenue and the expenses. In case of signing the bonus, the owners accounted them as a current expense of the year and would not spread over the life of contract. In case of reservation fees of luxury boxes, the owners spread it over the estimated life. Therefore it is said that the owners do not treat therevenue and expense the same way.
Conclusion
On the basis of the above analysis, it is concluded that both income statements (Owners and players) require some corrections which are necessary in order to reflect the true profitability. In order to resolve the accounting disagreement, both the parties should come on the same page and follow the practices which are beneficiary for the club rather than giving benefit to a single party. If both the parties would follow the past practices so the disagreement would not be resolved at anyhow. The club should treat both i.e. revenues in the same ways and follow the consistent practices in order to get the true accounting results...........................
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