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Accounting

Cases
- Irene Sherlyta Gloria
- Mahmudah
- M. Arief Amruzar
- Martina Ratna Uli

- Muadz Akbar Iskandar

CASE 2-3
LONE PINE CAF (A)*
On March 31, 2010, the partnership that had been organized to operate the Lone Pine Caf
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 husbands insurance policy.
On that day also the partnership signed a one-year lease to the Lone Pine Caf, located in
a nearby recreational area. The monthly rent on the caf 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 2-3
LONE PINE CAF (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 caf. 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 2-3
LONE PINE CAF (A)*
Mrs. Antoine decided to continue operating the Lone Pine Caf. 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. Simpsons 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 Caf 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 CAF

CASE 2-3
LONE PINE CAF (A)*

Questions 1:
Prepare a Statement of Financial Position for
the Lone Pine Caf as of November 2, 2009.

CASE 2-3
LONE PINE CAF (A)*
INFORMATIONS GIVEN:
Transactions in Nov 1, 2009
Initial Partners 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

= $ 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 2-3
LONE PINE CAF (A)*

Checking Account Balance calculation:


= Total Incoming Cash Total Outgoing Cash
= (Partners 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:
= Caf Equiment + New Cash Register
= $ 53,200 + $ 1,400
= $ 54,600

Lone Pine Caf


Statement of Financial Position
As of November 2, 2009

Assets

Liabilities

Current Assets

Bank Loan

Cash

$ 10,172

Foods & Beverages

Prepaid expense

$ 1,428

$ 21,000

Total Liabilities

2,800

$ 21,000

$ 14,400

Total Current Assets

Owners Equity
Non Current Assets
Equipment
Total Non Current Assets

Total Assets

$ 54,600
$ 54,600

$ 69,000

Mr. Antoines capital

$ 16,000

Mrs. Antoines capital

$ 16,000

Mrs. Landerss capital

$ 16,000

Total Equity

$ 48,000

Total Liabilities & Equity

$ 69,000

CASE 2-3
LONE PINE CAF (A)*

Questions 2:
Prepare a Statement of Financial Position as of
March 30,2010.

CASE 2-3 (Answer of Q2)


LONE PINE CAF (A)*
INFORMATION GIVEN:
Conditions after The Disappearance of Mr. Antoine and Mrs. Landers
(until March 30)

Cash register contained $ 311


Checking account balance $ 1,030
A/R: Servicing Ski Instructor $ 870
Owed Suppliers $ 1,583
Asset Depreciation $ 2,445
Food and Beverages on hand $ 2,430
Partners drew salaries at agreed-upon amounts
Clothes left by Mr. Antoine $ 750
Repaid the bank loan $ 2,100

CASE 2-3 (Answer of Q2)


LONE PINE CAF (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 Caf


Statement of Financial Position
As of March 30, 2010

Assets

Liabilities

Current Assets

Current Liabilities

Cash

$ 1,341

Account Payable

Account Receivable

Non Current Liabilities

Food & Beverages

$ 2,430

Bank Loan

Prepaid expense

Total Liabilities

870

833

Total Current Assets

5,474

Non Current Assets

$ 1,583

$ 18,900
$ 20,483

Owners Equity
Mr. Antoines Capital

$ 12,382

Equipment s

$ 54,600

Mrs. Antoines Capital

$ 12,382

Less: Accum. Depreciation

$ (2,445)

Mrs. Landers Capital

$ 12,382

Total Non Current Assets

$ 52,155

Total Assets

$ 57,629

Total Equity

$ 37,146

Total Liabilities & Equity

$ 57,629

CASE 2-3
LONE PINE CAF (A)*

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 2-3 (Answer of Q3)


LONE PINE CAF (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 Caf on
forced sale.
LIQUIDATION VALUE ESTIMATION

Assets
Cash
Account Receivable
Inventory
Prepaid Expense
Caf Equipment
TOTAL

Current
Statement of
Financial Position
$1,341
$870
$2,430
$833
$52,155
$57,629

Assumed
Recovery
100%
100%
0%
0%
35%

Liquidation Value
$1,341
$870
$0
$0
$18,254
$20,465

CASE 2-3 (Answer of Q3)


LONE PINE CAF (A)*
-

The Lone Pine Caf 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 3-2
LONE PINE CAF (B)*
In addition to preparing the balance sheet described in Lone Pine Caf (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*
$ 23,150
Wages to part-time employees
Interest
Food and beverage suppliers

Telephone and electricity


Miscellaneous
Rent payment

5,480
540
10,016
3,270
2,55
7,500

CASE 3-2
LONE PINE CAF (B)*

Questions 1:
Prepare an Income Statement for the period of
the cafs operations through March 30,2010.

CASE 3-2 (Answer of Q1)


LONE PINE CAF (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 CAF (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 CAF (B)*
1. Salary to Partners are booked directly as expense, and will hit
the Income Statement.
LONE PINE CAF
INCOME STATEMENT
For Period of Nov 2, 2009 March 30, 2010
Sales Revenue
COGS (Foods & Beverages)
Gross Profit
Operating Expenses:
Salary to Partner
Part-Time Employee Wages
Telephone & Electricity Expense
Rent Expense
Depreciation Expense
Operating License Expense
Miscellaneous Expense
Total Operating Expenses
Earning Before Interest & Taxes
Interest Expense
Net Income

$44,350
$11,969
$32,381

$23,150
$5,480
$3,270
$7,500
$2,445
$595
$255
$42,695
-$10,314
$540
-$10,854

CASE 3-2 (Answer of Q1)


LONE PINE CAF (B)*
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 CAF
INCOME STATEMENT
For Period of Nov 2, 2009 March 30, 2010
Sales Revenue
COGS (Foods & Beverages)
Gross Profit
Operating Expenses:
Part-Time Employee Wages
Telephone & Electricity Expense
Rent Expense
Depreciation Expense
Operating License Expense
Miscellaneous Expense
Total Operating Expenses
Earning Before Interest & Taxes
Interest Expense
Net Income

$44,350
$11,969
$32,381

$5,480
$3,270
$7,500
$2,445
$595
$255
$19,545
$12,836
$540
$12,296

CASE 3-2 (Answer of Q1)


LONE PINE CAF (B)*
STATEMENT OF CHANGES IN EQUITY
For Period of Nov 2, 2009 March 30, 2010

Mr. Antoines Capital


Mrs. Antoines Capital
Mrs. Landerss Capital
Total Partners Capital as of Nov 2, 2009
Add:
Net Income (Nov 2, 2009 - Mar 30, 2010)
Deduct:
Salary to Mr. Antoine
Salary to Mrs. Antoine
Salary to Mrs. Landers
Total Partners' Drawings (Nov 2, 2009 March 30, 2010)
Increase/(Decrease) in Partners Capital
Total Partners Capital as of March 30, 2010

$16,000
$16,000
$16,000
$48,000

$12,296

$7,717
$7,717
$7,717
$23,150
-$10,854
$37,146

CASE 3-2
LONE PINE CAF (B)*

Questions 2:
What does this Income Statement tell Mrs.
Antoine ?

CASE 3-2 (Answer of Q2)


LONE PINE CAF (B)*
1 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 Caf cannot support the three partners,
and Mrs. Antoine income is only from monthly salary.
st

2 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.
nd

PROBLEM 3-7
QED ELECTRONICS COMPANY
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 $2,100
Utility bills totaling $1,500 were paid. $700 of this amount was associated with Marchs operations.
Depreciation expense was $2,700
Selling expenses were $1,900
A 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 3-7
QED ELECTRONICS COMPANY

Questions:
Prepare a detailed April Income Statement.

PROBLEM 3-7 (Answer of Q1)


QED ELECTRONICS COMPANY
QED ELECTRONICS COMPANY
Income Statement
For Period of April
Revenue
Service Revenue

$33,400

Total Revenue

$33.400

Expenses
Bad Debt

Wages

$10.000

Parts

$ 3.700

Utility

Depreciation

$ 2.700

Selling

$ 1.900

Administrative & Misc

$ 4.700

Total Operating Expenses

645

=5% * (33400-20500)
=1600+2100

800

$24.445

Earning before interest & taxes

$ 8.955

Interest Expense

Taxes

$ 2.800

Net Income

$ 5.275

880