You were just hired as the new Chief Financial Officer (CFO) for an Arena Football 2 team, the Columbia Destroyers. The previous CFO, who has recently left the organization, was not good at his job, unfortunately. The financials are a mess. In addition, the president of the club is asking you to create financials and a budget for the next fiscal year. The information is not altogether good, but you know how to create financial statements for the club. The facts you do know regarding the financial operation of the club are as follows:

a.You have a copy of last year's financials (balance sheet and income statement)

b.The club was purchased last year for $1 million and uses the accrual basis of accounting.

c.The club was capitalized as follows:

Borrowed $1,000,000 at 5% interest for five years

i.Payment = $155,653, which includes $70,000 interest in year 1 and $61,911 interest in year 2

d.It is forecasted that costs and expenditures will change as follows:

Purchase

Additional equipment$60,000

Cash Expenses

Player compensationincrease 4.5%

Football operationsremain the same

Business operationsdecrease 2.5%

Rentincrease by $15,000

The team is expected to generate cash receipts as follows:

Ticket sales47,500 fans at $18.25 per ticket

Concessions47,500 fans at $4.50 per fan

Parking$43,000 per year

Advertising/sponsorship$350,000

Merchandise47,500 fans at $2.70 per fan

f.Depreciation:

All short-term fixed assets depreciated over a 5-year life using the straight line method

g.Other information:

The balance in the cash account on December 31, 2016 was $1,343,566.23.

The balance in the owners equity account on December 31, 2016 increased by $568,176.04 from 2015.

The football team pays the City 8% tax for each ticket sold. This is an expense.

Accounts receivable for ticket sales was $3,000 in 2016.

Accounts payable for business operations was $160,000 in 2016.

Franchise value is amortized over a 15-year period.

The owners do not take a salary but instead put any profit back into the business.

Tax Rate: 35%

To Do: Using Excel, Prepare:

a Balance Sheet and Income Statement for 2016

an Operating Budget for 2016 using the information provided and adding in 2 new sources of revenue and categorizing expenses as fixed or variable.

an Operating Budget for 2017 using the modified zero based budget method with a forecasted 2% increase in total revenues and a 3% decrease in eligible expenses.

Briefly explain why you chose the new revenue sources and how you chose which expenses to cut.

*Use the Excel spreadsheet posted on Course Den as a starting point

**Remember that Balance Sheets have to be Assets = Liabilities + Owners Equity. If yours doesnt balance, you need to double check numbers. Also remember that the Balance Sheet shows a cumulative balance of an account on a specific day, while the Income Statement shows what was earned or spent in a particular account over the entire year.

Columbia Destroyers

Balance Sheet, December 31 2016 & 2015

2016

2015

Assets:

Cash

$ 1,233,000.67

Accounts Receivable

$ 8,000.00

Total Current Assets

$ 1,241,000.67

Franchise Value, net Amortization

$ 933,333.33

Equipment

$ 250,000.00

Accumulated Depreciation

$ (50,000.00)

Total Assets

$2,374,334.00

Liablilities:

Accounts Payable

$ 100,000.00

Long Term Debt

$ 884,447.00

Total Liabilities

$ 984,447.00

Owners Equity:

Equity

$ 1,500,000.00

Retained Earnings

$ (110,113.00)

Total Equity

$ 1,389,887.00

Total Liabilities and Equity

$2,374,334.00

Columbia Destroyers

Income Statement, 2016 & 2015

2016

2015

Revenues:

Ticket Sales

$ 658,000.00

Accounts Receivable

$ -

Concessions

$ 140,000.00

Advertising

$ 456,000.00

Merchandise

$ 80,000.00

Parking

$ 50,000.00

Total Revenues

$ 1,384,000.00

Operating Expenses:

Player Salary

$ 195,000.00

Football Operations

$ 459,700.00

Business Operations

$ 497,000.00

Accounts Payable

$ 100,000.00

Ticket Tax

$ 65,000.00

Rent

$ 64,155.00

Total Operating Expenses

$ 1,380,855.00

Operating Income (Loss)

$ 3,145.00

Depreciation

$ (50,000.00)

Amortization of Franchise

$ (66,667.67)

EBIT

$ (113,522.67)

Interest expense

$ (70,000.00)

EBT

$ (183,522.67)

Tax

$ (73,409.07)

Net income (loss)

$ (110,113.60)

Columbia Destroyers
Operating Budget, 2016 & 2017
			2016		2017
Revenues:
Ticket Sales
Concessions
Advertising
Merchandise
Parking
New Revenue 1
New Revenue 2
Total Revenues
Operating Expenses:
Fixed
Variable