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 Icon

ANALYSIS 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?