VCase2-3

e Lone Pine Cafe. (A)*

On 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 1 005) P e ;upreme Court of the State
f Harvard Business School.' ro essor Robert N. Anthony,
!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 Mrs. Antoine decided to continue operating the
practically all of their savings. Mrs. Landers' pay Lone Pine Cafe. She realized that an accounting
ment was the proceeds of her late husband's insur would have to be made as of March 30 and called in
ance policy. Donald Simpson, an acquaintance who was knowl
On that day also the partnership signed a one edgeable about accounting.
year lease to the Lone Pine Cafe, located in a nearby In response to Mr. Simpson's questions, Mrs. An
recreational area. The monthly rent on the cafe was toine said that the cash register had contained $311
$1,500. This facility attracted the partners in part be and that the checking account balance was $1,030.
cause there were living accommodations on the floor Ski instructors who were permitted to charge their
above the restaurant. One room was occupied by the meals had run up accounts totaling $870. (These
Antoines and another by Mrs. Landers. counts subsequently were paid in full.) The Lone
The partners borrowed $21,000 from a local Pine Cafe owed suppliers amounts totaling $) ,583.
bank and used this plus $35,000 of partnership Mr. Simpson estimated that depreciation on the as
funds to buyout the previous opl'rator of the cafe. sets amounted to $2,445. Food and beverages on
Of this amount, $53,200 was for equipment and hand were estimated to be worth $2,430. During the
$2,800 was for the food and beverages then on period of its operation, the partners drew salaries at
hand. The partnership paid $1,428 for local operat agreed-upon amounts, and these payments were up
ing licenses, good for one year beginning Novem to date. The clothing that Mr. Antoine left behind was
ber I, and paid $1,400 for a new cash register. The estimated to be worth $750. The partnership had also
remainder of the $69,000 was deposited in a check repaid $2,100 of the bank loan.
ing account. Mr. Simpson explained that in order to account
Shortly after November I, the partners opened for the partners' equity, he would prepare a balance
the restaurant. Mr. Antoine was the cook, and Mrs. sheet. He would Ust the items that the partnership
Antoine and Mrs. Landers waited on customers. owned as of March 30, subtract the amounts that it
Mrs. Antoine also ordered the food, beverages, and owed to outside parties, and the balance would be
supplies, operated the cash register, and was re the equity of the three partners. Each partner would
sponsible for the checking account. be ertitled to one-third of this amount.
The restaurant operated throughout the winter
season of 2005-2006. It was not very successful. On
Questions
the morning of March 31, 2006, Mrs. Antoine dis
covered that Mr. Antoine and Mrs. Landers had dis
I. Prepare a balance sheet for the Lone Pine Cafe
appeared. Mrs. Landers had taken all her posses
as of November 2, 2005.
sions, but Mr. Antoine had left behind most of his
clothing, presumably because he could not remove it
2. Prepare a balance sheet as of March 30, 2006.
without warning Mrs. Antoine. The new cash register 3. Disregarding the marital complications, do you
and its contents were also missing. No other partner suppose that the partners would have been able
ship assets were missing. Mrs. Antoine concluded to receive their proportional share of the equity
that the partnership was dissolved. (The court subse determined in Question 2 if the partnership was
quently affirmed that the partnership was dissolved dissolved on March.30, 2006? Why?
as 30.)
Chapter 3 Basic Accounting Concepts: The Income Statement 75
EXHIBIT 1

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. Anthony, Harvard Busi
ness School.
One-third to each partner.
Questions
1. Prepare an income statement tor the period of
the cafe's operations through March 30, 2006.
2. What does this income statement tell Mrs.
Monthly payments to partners
Wages to part-time employees
Interest
Food an.d beverage suppliers
Telephone and electricity
Miscellaneous
Rent payments
$23,150
5,480
540
10,016
3,270
255
7,500
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