September 17, 2015
Dave Chun
Advanced Accounting 401
Dear Mr. Doublecount,
I am writing this letter in regards to your questions concerning Screagle players’ salary negotiations. After looking at the Screagles Baseball Company and Screagles Stadium Inc. income statements, in comparison to the relationship between the two companies, I have decided that we need to consolidate both income statements by using the control equity method.
The reason that we need to consolidate the income statements is because there is a direct relationship between the parent and subsidiary company. U.S. GAAP (Generally Accepted Accounting Principles) states that when there is a controlling financial interest between two parties, they have to consolidate. There are two ways to determine if control exists: quantitative (voting majority) and qualitative (economic risk and reward). The relationship between Screagles Baseball Company and Screagles Stadium Inc. displays both.
General partnerships are outlined in the FASB ASC 970-810-25-1, with special regards to consolidation in FASB ASC 810-10-15-8, which explains “that the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one entity, directly or indirectly, of over 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation.” From the inquiry, I see that Screagles Baseball Company owns 91% of the voting rights regarding Screagles Stadium Inc. This fulfills the quantitative requirement for control.
Screagles Stadium Inc. was built specifically for baseball. All of the Screagles’ home games are played there. The stadium makes its revenue from the games played by the team, including ticket sales, concessions, and parking. This demonstrates the economic risk and reward, meeting the qualitative requirement.
The Statement of Financial Accounting Standard No. 160 gives detail as to...