Forrest Gump Case


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FORREST GUMP—ACCOUNTANT: A STUDY OF ACCOUNTING IN THE MOTION PICTURE INDUSTRY Glenn Pfeiffer CHAPMAN UNIVERSITY Robert Capettini and Gene Whittenburg SAN DIEGO STATE UNIVERSITY Hollywood accounting can be every bit as creative as a good movie script. At least, that is what some lawyers and journalists seem to be telling us. According to news reports, the hit movie Forrest Gump, which won 'Best Picture of 1994' honors at the Academy Awards, claimed a worldwide theatrical gross of $661 million through May of 1995. That amount excludes videocassette and soundtrack revenues, and it does not include licensing fees on Forrest Gump products such as wristwatches, ping-pong paddles, and shrimp cookbooks. Yet, according to Paramount Studios, the film project lost $62 million on a box office gross of $382 million through December, 1994 (see Table 1). Forrest Gump is the latest of a string of hit movies to report a loss. Other losers include Batman, Rain Man, Dick Tracy, Ghostbusters, Alien. On Golden Pond, Fatal Attraction, and Coming to America. Each of these motion pictures grossed well over $100 million, but in each case, costs were reportedly greater than revenues. Table 1. Statement of Profit and Loss for net profit participants on the motion picture, Forrest Gump, through December 31, 1994 Box office gross revenues Amount retained by movie theaters (approx. 50%) Paramount's gross revenues Negative costs: Direct costs: Production costs Gross profit participation by director, actors, etc. (16% of studio gross revenues) Total direct costs Studio overhead (allocated- 15% of direct costs) Total negative costs Promotion and distribution costs Advertising overhead (allocated--10% of promotion and distribution costs) Distribution fee (32% of studio gross revenues) Financing costs (calculated at 3% above prime, on
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