1. Sale of Box Seats

Ciclons management decided to market aggressively the 10 corporate boxes in the stadium. The contracts stipulated an initial payment of $50,000 that gave the acquirer the right to buy annually season tickets for the box. This initial payment was nonrefundable. Beyond the initial payment, each year, the box holder needed to make an annual payment of $25,000 in order to actually receive the season tickets. If the box holder decided not to buy the season ticket, the contract established that they would lose the right to the box and the right to buy season tickets for their box; the box would be then offered for sale to other parties. The experience of other teams in the league suggested that, on average, box holders bought season tickets for 15 years before waiving their right to buy them and to use the box. The sale was a huge success, with all boxes sold and season tickets paid for on December 31, 2002.

Question: How would you account on December 31st, 2002 and December 31st, 2003 for the amounts Cicln received from the sale of box seats on December 31st, 2002? Be explicit about the timing and amounts for the $50,000 initial payment and the $25,000 payment for the season tickets.

2.The Lease of the Parking Garage

To prevent excessive traffic jams, the Alicante Tourist Board suggested Ciclon lease or acquire a parking garage recently built in the proximity of the stadium. The fair market acquisition cost of the garage was $6.5 million, but Ciclon agreed to lease it for 10 years for an annual payment of $1 million paid each December 31 (the first payment to be made in December 2003). The expected useful life of the building was 20 years, when major renovations would be needed to keep the building in usable condition. Ciclons marginal borrowing rate was 10%. They signed the lease contract on January 1, 2003.

Question: If Ciclon were to follow U.S. accounting rules to account for the lease of the parking garage, what would be the impact of the lease on Ciclons 2003

a) Income Statement

b) Statement of Cash Flows (under the Indirect Method)

c) Balance Sheet for the year ended on December 31, 2003?

Please answer both questions and give detailed reasonings. Thank you in advance for your help!

Exhibit 1 Present Value Tables Present Value of $1 Periods 0.9259 0.8573 0.7938 0.7350 0.6806 0.6302 0.5835 0.5403 0.5002 0.4632 0.2146 0.0994 0.0460 0.0213 10% 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 0.1486 0.0573 0.0221 0.0085 12% 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4524 0.4039 0.3606 0.3220 0.1037 0.0334 0.0108 0.0035 2 3 6 20 30 50 Present Value of an Ordinary Annuity of $1 Periods 5% 0.9259 1.7833 2.5771 3.3121 3.9927 4.6229 5.2064 5.7466 6.2469 6.7101 9.8182 11.2578 11.9246 12.2335 10% 0.9091 1.7355 2.4869 3.1699 3.7908 4.3553 4.8684 5.3349 5.7590 6.1446 8.5136 9.4269 9.7791 9.9148 12% 0.8929 1.6901 2.4018 3.0373 3.6048 4.1114 4.5638 4.9676 5.3282 5.6502 7.4694 8.0552 8.2438 8.3045 2 4 6 30