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. (See complete statement at http://www.scribd.com/doc/288745589/Gale-Force-Holdings (Links to an external site.).)

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)

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.

Answer 1

1)Does “Depreciation & Amortization” affect cash (ignore income taxes)

ans- NO .

Depreciation & Amortization doesnot affect cash .

it is a non cash fow item

2)Did the owner actually incur out-of-pocket expenses causing the loss?

ans-no.

the owner does not incur out-of-pocket expenses causing the loss

actualy the loss occured due to non cash item

3)If the Carolina Hurricanes Owner were to suddenly shut down the PNC Arena, would he be better or worse off financially?

ans-the Carolina Hurricanes Owner were to suddenly shut down the PNC Arena, he is  better financially

let see the above mentioned data

revenues and operating expenses

revenues is more then operating expense and the loss is due to non cash item

and other income non arena related is $105864

so it s better in finacial