https://accountingintheheadlines.com/2016/02/16/would-the-owner-of-the-pnc-arena
ID: 2489181 • Letter: H
Question
The Gale Force Holdings Limited Partnership owns both the Carolina Hurricanes (a professional hockey team) and the PNC Arena where the Hurricanes play. A recent news article stated that the Carolina Hurricanes owner lost $1.3 million in operating the PNC Arena for the fiscal year ending June 2015 (Forbes, Mike Ozanian, “Carolina Hurricanes Owner Lost $1.3 Million Operating PNC Arena,” November 6, 2015.) Gale Force Holdings LP leases the PNC Arena from the Centennial Authority (a public/private partnership that developed and owns the arena). In 2008, the lease for PNC Arena was extended to 2024.
See the following income statement excerpt from the Gale Force Holdings LP Consolidated Statement of Operations for the year ended June 30, 2015.
Questions
1 Does “Depreciation & Amortization” affect cash (ignore income taxes)?
2 The title of the Forbes news article stated “Carolina Hurricanes Owner Lost $1.3 Million Operating PNC Arena.” Did the owner actually incur out-of-pocket expenses causing the loss?
3 If the Carolina Hurricanes Owner were to suddenly shut down the PNC Arena, would he be better or worse off financially? Explain. Assume that there is no alternate use for the PNC Arena.
Revenues $ 23,055,725 Operating expenses 22,748,229 Operating income (loss) $ 307,496 Depreciation & Amortization (1,707,607) Other Income/Non-Arena Related 105,864 NET INCOME (LOSS) $ (1,294,247)Explanation / Answer
(1) Depreciation and amortization merely spreads the capital cost of purchased assets over their useful lives, and are non-cash expenses. So, even though these two items affect accrual-based net income, they do not affect cash.
(2) & (3): Please provide transcript/Link to the reference article.
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