accounting-lone pine cafe case

Accounting Cases - Irene Sherlyta Gloria - Mahmudah- M. Arief Amruzar - Muadz Akbar Iskandar- Martina Ratna Uli

On March 31, 2010, the partnership that had been organized to operate the Lone Pine Café was dissolved under unusual circumstances, and in connection with its dissolution, preparation of a balance sheet became necessary.

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, 2009, each of the three partners contributed $16,000 cash to the partnership and agreed to share in the profits proportionally to their contributed capital (i.e, one-third each). The Antoines’ contribution represented practically all of their saving. Mrs. Landers’ payment was the proceeds of her late husband’s insurance policy.

On that day also the partnership signed a one-year lease to the Lone Pine Café, located in a nearby recreational area. The monthly rent on the café was $1,500. This facility attracted the partners in part because there were living accommodations on the floor above the restaurant. One room was occupied by the Antoines and another by Mrs. Landers.

CASE 2-3LONE PINE CAFÉ (A)*

The partners borrowed $21,000 from a local bank and used this plus $35,000 of partnership funds to buy out the previous operator of the café. 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 operating licenses, good for one year beginning November 1, and paid $1,400 for a new cash register. The remainder of the $69,000 was deposited in a checking account.

Shortly after November 1, 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 responsible for the checking account.

The restaurant operated throughout the winter season of 2009-2010. It was not very successful. On the morning of March 31, 2010, Mrs. Antoine discovered that Mr. Antoine and Mrs. Landers had disappeared. Mrs. Landers had taken all her possessions, 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 partnership assets were missing. Mrs. Antoine concluded that the partnership was dissolved. (The court subsequently affirmed that the partnership was dissolved as of March 30.)


Mrs. Antoine decided to continue operating the Lone Pine Café. She realized that an accounting would have to be made as of March 30 and called in Donald Simpson, an acquaintance who was knowledgeable about accounting.In response to Mr. Simpson’s questions, Mrs. Antoine 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 accounts subsequently were paid in full.) The Lone Pine Café owed suppliers amounts totaling $1,583. Mr. Simpson estimated that depreciation on the assets 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 list the items that the partnership owned as of March 30, subtract the amounts that it owned as of March 30, subtract the amounts that it owed to out-side parties, and the balance would be the equity of the three partners. Each partner would be entitled to one-third of this amount.


LONE PINE CAFÉ

Questions 1:

Prepare a Statement of Financial Position for the Lone Pine Café as of November 2, 2009.


INFORMATIONS GIVEN:

Transactions in Nov 1, 2009

Initial Partner’s Contribution $ 48,000 consists of:

- Mr. Antoine = $ 16,000

- Mrs. Antoine = $ 16,000

- Mrs. Landers = $ 16,000

Transactions in Nov 2, 2009

Monthly Rental = $ 1,500

Bank Loan = $ 21,000

Second Equipment s = $ 53, 200

Foods & Beverages = $ 2,800

Local Operating License (for 1 year) = $ 1,428

New Cash Register = $ 1,400

The remainder of total money will be deposited in checking account

Mr. Antoine & Mrs. Landers were disappeared on the morning of March 31, 2010.

Business was not successful.

The Court affirmed the partnership was dissolved as of March 30, 2010


Checking Account Balance calculation:

= Total Incoming Cash – Total Outgoing Cash

= (Partner’s Capital + Bank Loan) – (Equipment + Foods & Beverages + Licenses + Cash Register)

= ( $ 48,000 + $ 21,000) – ($ 53,200 + $ 2,800 + $ 1,428 + $ 1,400)

= ( $69,000) – ($ 58,828)

= $ 10,172

Equipment:

= Café Equiment + New Cash Register

= $ 53,200 + $ 1,400

= $ 54,600


Lone Pine CaféStatement of Financial Position

As of November 2, 2009

Assets

Current Assets

Cash

Foods & BeveragesPrepaid expense

Total Current Assets

Non Current Assets

Equipment

Total Non Current Assets

Total Assets

$ 10,172

$ 2,800$ 1,428

$ 14,400

$ 54,600

$ 54,600

$ 69,000

Liabilities

Bank Loan

Total Liabilities

Owners’ Equity

Mr. Antoine’s capital

Mrs. Antoine’s capitalMrs. Landers’s capital

Total Equity

Total Liabilities & Equity

$ 21,000

$ 21,000

$ 16,000

$ 16,000

$ 48,000$ 69,000

$ 16,000

Questions 2:

Prepare a Statement of Financial Position as of March 30,2010.


INFORMATION GIVEN:Conditions after “The Disappearance of Mr. Antoine and Mrs. Landers”(until March 30)Cash register contained $ 311Checking account balance $ 1,030A/R: Servicing Ski Instructor $ 870Owed Suppliers $ 1,583Asset Depreciation $ 2,445Food and Beverages on hand $ 2,430Partners drew salaries at agreed-upon amountsClothes left by Mr. Antoine $ 750Repaid the bank loan $ 2,100

CASE 2-3 (Answer of Q2)LONE PINE CAFÉ (A)*

INFORMATION GIVEN:Total Cash:

= Cash in Cash Register + Checking Account

= $ 311 + $ 1,030

= $ 1,341

•Prepaid Expense:

= $ 1,428 *7/12

= $ 833

Total Capital of 3 Partners:

= Total Assets – (Total Liabilities)

= (Cash + A/R + Foods & Bev + Prepaid Expense + Equipment) – (Account Payable + Bank Loan)

= ($ 1,341 + $ 870 + $ 2,430 + $ 833 + ($54600-$2445) ) – ($ 1,583 + ($ 21,000 - $ 2,100) )

= ($57,629) - ($20,483)

= $ 37,146

= $ 12,382 for each Partner


Lone Pine CaféStatement of Financial Position

As of March 30, 2010

Assets

Current Assets

Cash

Account Receivable

Food & BeveragesPrepaid expense

Total Current Assets

Non Current Assets

Equipment s

Less: Accum. DepreciationTotal Non Current Assets

Total Assets

$ 1,341

$ 870$ 2,430$ 833

$ 5,474

$ 54,600

$ (2,445)

$ 52,155$ 57,629

Liabilities

Current Liabilities

Account Payable

Non Current LiabilitiesBank Loan

Total Liabilities

Owners’ Equity

Mr. Antoine’s Capital

Mrs. Antoine’s CapitalMrs. Landers’ Capital

Total Equity

Total Liabilities & Equity

$ 1,583

$ 18,900 $

20,483

$ 12,382

$ 12,382

$ 37,146$ 57,629

$ 12,382

Questions 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, 2010? Why?


If the Partnership was dissolved on March 30, 2010 The Partners would not been able to receive their proportional share of the equity shown in the Statement of Financial Position, because:

- Their assets will not bring enough cash to pay the liabilities and Partners. Below is liquidation value estimation for Lone Pine Café on forced sale.


LIQUIDATION VALUE ESTIMATION

Assets

Current Statement of

Financial Position

Assumed Recovery

Liquidation Value

Cash $1,341 100% $1,341Account Receivable $870 100% $870Inventory $2,430 0% $0Prepaid Expense $833 0% $0Café Equipment $52,155 35% $18,254TOTAL $57,629 $20,465

- The Lone Pine Café has obligation to precede payment to secured creditor (in this case is Bank), then payment to unsecured creditor (in this case is Supplier).

Payment to Partners/Shareholders will be placed in the final sequence therefore we suppose that it is very unlikely the Partners would have been able to receive their proportional share of the equity ($ 12,382 each) as determined in Statement of Financial Position as of March 30, 2010.


In addition to preparing the balance sheet described in Lone Pine Café (A), Mr. Simpson, the accountant, agreed to prepare an income 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 worthwhile 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:Monthly payments to partners* $ 23,150Wages to part-time employees 5,480Interest 540Food and beverage suppliers 10,016Telephone and electricity 3,270Miscellaneous 2,55Rent payment 7,500

CASE 3-2LONE PINE CAFÉ (B)*

Questions 1:

Prepare an Income Statement for the period of the café’s operations through March 30,2010.


-Case B is related to Case A.

INFORMATION GIVEN:

Sales Revenue = Cash Sales + Credit Sales

= $ 43,480 + $ 870

= $ 44,350

Food & Beverage Expense

= Beginning Inventory + Cash Purchase + Credit Purchase - Ending Inventory

= $ 2,800 + $ 10,016 + $ 1,583 – $ 2,430

= $ 11,969

CASE 3-2 (Answer of Q1)LONE PINE CAFÉ (B)*

There are 2 accounting methods to book Salary to Partners in Partnership / Incorporated Company:

1. Salary to Partners are booked directly as expense, and will hit the Income Statement.

2. Salary to Partners are not recognize as expense, but will be recognized as Partners Drawing, and it will be recorded in Statement of Changes in Equity.


1. Salary to Partners are booked directly as expense, and will hit the Income Statement.


LONE PINE CAFÉ INCOME STATEMENT

For Period of Nov 2, 2009 – March 30, 2010

Sales Revenue $44,350COGS (Foods & Beverages) $11,969Gross Profit $32,381

Operating Expenses: Salary to Partner $23,150 Part-Time Employee Wages $5,480 Telephone & Electricity Expense $3,270 Rent Expense $7,500 Depreciation Expense $2,445 Operating License Expense $595 Miscellaneous Expense $255Total Operating Expenses $42,695Earning Before Interest & Taxes -$10,314Interest Expense $540Net Income -$10,854

2. Salary to Partners are not recognize as expense, but it will be recognized as Partners Drawing, and will be recorded in Statement of Changes in Equity.


LONE PINE CAFÉ INCOME STATEMENT

For Period of Nov 2, 2009 – March 30, 2010

Sales Revenue $44,350COGS (Foods & Beverages) $11,969Gross Profit $32,381

Operating Expenses: Part-Time Employee Wages $5,480 Telephone & Electricity Expense $3,270 Rent Expense $7,500 Depreciation Expense $2,445 Operating License Expense $595 Miscellaneous Expense $255Total Operating Expenses $19,545Earning Before Interest & Taxes $12,836Interest Expense $540Net Income $12,296


STATEMENT OF CHANGES IN EQUITYFor Period of Nov 2, 2009 – March 30, 2010

Mr. Antoine’s Capital $16,000

Mrs. Antoine’s Capital $16,000

Mrs. Landers’s Capital $16,000

Total Partners Capital as of Nov 2, 2009 $48,000

Add:

Net Income (Nov 2, 2009 - Mar 30, 2010) $12,296

Deduct:Salary to Mr. Antoine $7,717

Salary to Mrs. Antoine $7,717

Salary to Mrs. Landers $7,717

Total Partners' Drawings (Nov 2, 2009 – March 30, 2010) $23,150

Increase/(Decrease) in Partners Capital -$10,854

Total Partners Capital as of March 30, 2010 $37,146

Questions 2:

What does this Income Statement tell Mrs. Antoine ?


1st Accounting Method: Salary to Partners -> Income Statement

The income statement tells Mrs. Antoine that the partnership has suffered a $10,854 loss of operation.

It would appear that Lone Pine Café cannot support the three partners,

and Mrs. Antoine income is only from monthly salary.

2nd Accounting Method: Salary to Partners -> Statement of Changes in Equity

In assessing the performance of a partnership, we need to pay attention to the Income Statement and Statement of Changes in Equity. A profitable income statement does not mean it can create a leverage of capital for all partners, hence the amount of the salary as well as the allocated drawing for the period of the time needs to be put on consideration as well.

At the end, this method also tells Mrs. Antoine that the partnership has suffered a $10,854 loss.


QED Electronic Company had the following transactions during April while conducting its television and stereo repair business.A new repair truck was purchased for $19,000.Parts with a cost of $1,600 were received and used during April.Service revenue for the month was $33,400, but only $20,500 was cash sales.

Typically, only 95 percent of sales on account are realized.Interest expense on loan outstanding was $880.Wage costs for the month totaled $10,000; however $1,400 of this had not yet been paid to the employees.Parts inventory from the beginning of the month was depleted by $2,100Utility bills totaling $1,500 were paid. $700 of this amount was associated with March’s operations.Depreciation expense was $2,700Selling expenses were $1,900A provision for income taxes was established at $2,800, of which $2,600 had been paid to the federal government.Administrative and miscellaneous expenses were recorded at $4,700.

PROBLEM 3-7QED ELECTRONICS COMPANY

Questions:

Prepare a detailed April Income Statement.

PROBLEM 3-7QED ELECTRONICS COMPANY

QED ELECTRONICS COMPANY

Income Statement

For Period of April

Revenue

Service Revenue $33,400

Total Revenue $33.400

Expenses

Bad Debt $ 645

Wages $10.000

Parts $ 3.700

Utility $ 800

Depreciation $ 2.700

Selling $ 1.900

Administrative & Misc $ 4.700

Total Operating Expenses $24.445

Earning before interest & taxes $ 8.955

Interest Expense $ 880

Taxes $ 2.800

Net Income $ 5.275

PROBLEM 3-7 (Answer of Q1)QED ELECTRONICS COMPANY

=5% * (33400-20500)

=1600+2100

accounting-lone pine cafe case

Documents

henry antoine

partnership assets

partnership funds

new cash register

sandra landers

landers payment

checking account balance

local operating licenses