accounting-lone pine cafe case
DESCRIPTION
Accounting case study Lone Pine Cafe, explain the answer of the caseTRANSCRIPT
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.)
CASE 2-3LONE PINE CAFÉ (A)*
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.
CASE 2-3LONE PINE CAFÉ (A)*
LONE PINE CAFÉ
Questions 1:
Prepare a Statement of Financial Position for the Lone Pine Café as of November 2, 2009.
CASE 2-3LONE PINE CAFÉ (A)*
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
CASE 2-3LONE PINE CAFÉ (A)*
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
CASE 2-3LONE PINE CAFÉ (A)*
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.
CASE 2-3LONE PINE CAFÉ (A)*
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
CASE 2-3 (Answer of Q2)LONE PINE CAFÉ (A)*
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?
CASE 2-3LONE PINE CAFÉ (A)*
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.
CASE 2-3 (Answer of Q3)LONE PINE CAFÉ (A)*
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.
CASE 2-3 (Answer of Q3)LONE PINE CAFÉ (A)*
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 3-2LONE PINE CAFÉ (B)*
-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.
CASE 3-2 (Answer of Q1)LONE PINE CAFÉ (B)*
1. Salary to Partners are booked directly as expense, and will hit the Income Statement.
CASE 3-2 (Answer of Q1)LONE PINE CAFÉ (B)*
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.
CASE 3-2 (Answer of Q1)LONE PINE CAFÉ (B)*
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
CASE 3-2 (Answer of Q1)LONE PINE CAFÉ (B)*
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 ?
CASE 3-2LONE PINE CAFÉ (B)*
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.
CASE 3-2 (Answer of Q2)LONE PINE CAFÉ (B)*
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