Lone Pine Cafe Case Analysis

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Analysis for 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 her wishes.

Lone Pine Café Balance Sheet As of November 2, 2005

Assets
Current assets:
Cash $8,672
Inventory $2,800
Total current assets $11,472

Other assets:
Property lease - prepaid expense$1,500
Equipment $54,600
Liscence - prepaid expense $1,428 $57,528
Total assets$69,000

Liabilities and Shareholders’ Equity
Current liabilities:
Notes Payable$21,000
Total current liability$21,000

Shareholders’ equity:
Paid-in capital:
Mr. Henry Antoine, Capital$16,000
Mrs. Antoine, Capital $16,000
Mrs. Sandra Landers, Capital $16,000
Total shareholders’ equity$48,000
Total Liabilities and Shareholders’ equity$69,000

Lone Pine Café
Balance Sheet
As of March 30, 2006

Assets
Current assets:
Cash (account + register) $1,341
Inventory $2,430
Total current assets $3,771
Other assets:
Accounts Receivable $870
Equipment¹ $54,600
Less depreciation ($2,445)
Prepaid expenses ($1,428/12 mo. *7 rem.) $833 $53,858 Total assets$57,629

Liabilities and Shareholders’ Equity
Current liabilities:
Rent Payable$10,500
Notes payable$18,900
Accounts payable $ 1,583
Total current liability$20,483
Shareholders’ equity:
Paid-in capital:
Mr. Henry Antoine, Capital$16,000
Mrs. Antoine, Capital $16,000
Mrs. Sandra Landers, Capital $16,000
Retained earnings ($10,854)
Total shareholders’ equity$37,146
Total Liabilities and Shareholders’ equity$57,629

The owners would receive their proportionate share of equity or losses as of the March 30th, 2006. Each owner invested an equally equitable sum into the partnership as of November 1st,...
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