VCase2-3 e Lone Pine Cafe. (A)* On ~arch 31, 2006, the partnership that had been orgamzed to operate the Lone Pine Cafe was dis­ solved under unusual circumstances and l’n nectio . h’ . ,con­ n WIt Its dIssolution, preparation of a bal­ ance sheet became necessary. • Based on a case decided b th of Oregon (216 p. 2d 1005) ~ Pe ;upreme Court of the State Harvard Business School. ‘ ro essor Robert N. Anthony, f The partnership was formed by Mr. and Mrs. Henry Antoine and Mrs.

Sandra Landers, who had become acquainted while working in a Portland,

Oregon, restaurant. On November 1,2005, each of the three partners contributed $16,000 cash to the partnership and agreed to share in the profits pro­ portionally to their contributed capital (i. e. , one- third each). The Antoines’ contribution represented practically all of their savings. Mrs. Landers’ pay­ ment was the proceeds of her late husband’s insur­ ance policy. On that day also the partnership signed a one­ year lease to the Lone Pine Cafe, located in a nearby recreational area.

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The monthly rent on the cafe was $1,500.

This facility attracted the partners in part be­ cause there were living accommodations on the floor above the restaurant. One room was occupied by the Antoines and another by Mrs. Landers. The partners borrowed $21,000 from a local bank and used this plus $35,000 of partnership funds to buyout the previous opl’rator of the cafe. Of this amount, $53,200 was for equipment and $2,800 was for the food and beverages then on hand. The partnership paid $1,428 for local operat­ ing licenses, good for one year beginning Novem­ ber I, and paid $1,400 for a new cash register.

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The remainder of the $69,000 was deposited in a check­ ing account. Shortly after November I, the partners opened the restaurant. Mr. Antoine was the cook, and Mrs. Antoine and Mrs. Landers waited on customers. Mrs. Antoine also ordered the food, beverages, and supplies, operated the cash register, and was re­ sponsible for the checking account. The restaurant operated throughout the winter season of 2005-2006. It was not very successful. On the morning of March 31, 2006, Mrs. Antoine dis­ covered that Mr.

Antoine and Mrs. Landers had dis­ appeared. Mrs. Landers had taken all her posses­ sions, but Mr. Antoine had left behind most of his clothing, presumably because he could not remove it without warning Mrs. Antoine. The new cash register and its contents were also missing. No other partner­ ship assets were missing. Mrs. Antoine concluded that the partnership was dissolved. (The court subse­ quently affirmed that the partnership was dissolved as ofMarc~ 30. ) Mrs. Antoine decided to continue operating the Lone Pine Cafe.

She realized that an accounting would have to be made as of March 30 and called in Donald Simpson, an acquaintance who was knowl­ edgeable about accounting. In response to Mr. Simpson’s questions, Mrs. An­ toine said that the cash register had contained $311 and that the checking account balance was $1,030. Ski instructors who were permitted to charge their meals had run up accounts totaling $870. (These ac~ counts subsequently were paid in full. ) The Lone Pine Cafe owed suppliers amounts totaling $) ,583. Mr. Simpson estimated that depreciation on the as­ sets amounted to $2,445.

Food and beverages on hand were estimated to be worth $2,430. During the period of its operation, the partners drew salaries at agreed-upon amounts, and these payments were up to date. The clothing that Mr. Antoine left behind was estimated to be worth $750. The partnership had also repaid $2,100 of the bank loan. Mr. Simpson explained that in order to account for the partners’ equity, he would prepare a balance sheet. He would Ust the items that the partnership owned as of March 30, subtract the amounts that it owed to outside parties, and the balance would be the equity of the three partners.

Each partner would be ertitled to one-third of this amount. ! Questions I. Prepare a balance sheet for the Lone Pine Cafe as of November 2, 2005. 2. Prepare a balance sheet as of March 30, 2006. 3. Disregarding the marital complications, do you suppose that the partners would have been able to receive their proportional share of the equity determined in Question 2 if the partnership was dissolved on March. 30, 2006? Why? Chapter 3 Basic Accounting Concepts: The Income Statement 75 EXHIBIT 1 ~e3-2 Lone Pine Cafe (B)*

In addition to preparing the balance sheet described in Lone Pine Cafe (A), Mr. Simpson, the accoun­ tant, agreed to prepare an jncome statement. He said that such a financial statement would show Mrs. Antoine how profitable operations had been, and thus help her to judge whether it was worth­ while to continue operating the restaurant. In addition to the information given in the (A) case, Mr. Simpson learned that cash received from customers through March 30 amounted to $43,480 and that cash payments were as follows: * Copyright Ii:) Professor Robert N.

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Lone Pine Cafe. (2020, Jun 02). Retrieved from https://studymoose.com/lone-pine-cafe-essay

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