Case 2-3 Lone Pine Cafe (A)* ‘On March 31, 2006, the partnership that had been or- ‘ganized to operate the Lone Pine Cafe was dissolved under unusual circumstances, and in connection with * Based on a case decided by the Supreme Court ofthe State ‘of Oregon (216 P.2d 1005). © Professor Robert N. Anthony, Harvard Business Schoo! their contributed capital (i, one-third each). The Antoines” contribution represented practically all of their savings. 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 Cale, located in a nearby recre- ational area, The monthly rent on the cafe was $1,500. This facility attracted the partners in part because there were living accommodations on the floor ubove 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 buy ut the previous operator 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 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 de- posited in a checking account. Shortly after November |, 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 Tor the ‘checking account, ‘The restaurant operated throughout the winter sea- son of 2005-2006. It was not very successful. On the morning of March 31, 2006, 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, presum- ably 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 subsequent afirmed thatthe partnership was dissolved as of March 30.) its dissolution, preparation of a balance sheet became The partnership was formed by Me and Mrs, Henry Antoine and Mrs. Sandra Landers, who had become acquainted while working in a Portland, Orégon. restaurant. On November 1, 2005, each of the three partners contributed $16,000 cash to the partirship and agreed 10 share in the profits proportionally 10 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 knowledgeable about accounting. In response to Mr. Simpson's questions, Mrs. An- toine said that the cas register had contained $311 and that the checking account balance wns $1,030. Ski in- structors who were permitted to charge theit meals had ‘un up accounts totaling $870. (These accounts subse- quently were paid in full.) The Lone Pine Cafe owed Suppliers amounts totaling $1,583. Mr, Simpson esti- mated that depreciation on the assets emounted to $2,445. Food and beverages on hand were estimated to bbe worth $2,430. During the period of ts 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 ofthe 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 owed to out- side parties, and the balance would be the equity of the three partners. Each partner would be entitled to one- third ofthis amount Questions 1. 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 det mined in Question 2 if the partnership was dis- solved on March 30, 2006? Why?Case 3-2 Lone Pine Cafe (B)* In addition to preparing the balance sheet deseribed in Lone Pine Cafe (A), Mr. Simpson, the accountant, agreed to prepare sn income statement. He ssid rat such a financial statement would show Mrs. Antoine: how profitable operations hal been, and thus help her to judge whether it was worthwhile to continue operat- ing the restaurant. ‘In addition to the information given in the (A) ease, Mr. Simpson learned that cash received from cus- tomers through March 20 amounted to $43,480 and that cash payments were as follows * Copyright © Professor Robert N. Anthony, Harvard Bus ess School $23,150 Monthly payments to partners* ‘Wages to part time employers 5,480 foterest 540 Food and beverage suppliers 10,016 ‘Telephone and electricity 3,270 Miscellaneous 255 Rent payments, 7,500 Oe hid wench parte Questions |. Propare an income statement for the period of the cafe's operations through March 30, 2006. 2. What does this income statement tell Mrs. Antoine?