Analysis: Lone Pine Café
The Lone Pine Café case involves a partnership of three people who initially invested $16,000 cash each in the venture. The first transaction resulted in a one year lease being signed for $1,500 per month or $18,000 per annum. The owners occupied quarters above the Café. No rental amount was assigned to this apace. The owners then borrowed $21,000 from a local bank and then utilized $35,000 of the initial capital invested in the firm to purchase $53,200 of equipment as well as $2,800 of inventory (food and beverages). The partnership paid for an operating liscence in the amount of $1,428 as well as an additional $1,400 for a cash register (itemized as equipment) in our analysis. The remaining cash attributed to the partnership was $8,672 as per the Balance Sheet dated November 2nd, 2005. The partnership operated for a period of five (5) months after which the partnership was dissolved as of March 30, 2006. The second balance sheet shows the state of the partnership entity finances as of this date. Furthermore, a revised capital account as of March 30th, 2006 would show a loss versus the original capital invested in the partnership. See Question #3 further in this document for details with respect to this loss. Lastly, it should be noted that we have made an assumption that the entity will remain a ‘going-concern’ in our analysis. This is a critical assumption in that a valuation of the remaining equity and/or any write downs if the entity was liquidated would show different retained earnings that would be impacted by a forced liquidation of the entity’s equipment and inventory as well as an immediate payment of the notes payable, rent and accounts payable ($20,483). A forced liquidation would result in a greater loss to each partner’s shareholder equity. In affect, the operating partner, Mrs. Antoine, is essentially limiting the other two partners’ as well as her losses by operating the entity as a ‘going concern’ per...
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