Lone Pine Cafe Case Analysis free essay sample

Analysis for Lone Pine Cafe The Lone Pine Cafe 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 Cafe. 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 Cafe 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 Cafe 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 Equipment? $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 owner s 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, 2005 under the understanding that they would share in the profits equally. While not implicitly stating that they would share in losses in the partnership, based on the calculation of retaining earnings as of March 30th, 2006 it appears that each partner actually incurred a loss of $3,618 from their original investment. This accounting would attempt to value the entity from the concept that the partnership is a â€Å"going concern† and not that the property is about to be liquidated. This primarily results in a valuation of the equipment as of March 30th balance sheet and its view that the equipment is utilised in a going concern. The underlying factor is that the entity operated for a period of time. The partnership resulted in a loss thus there is an equitable share of profit/loss once the entity is dissolved. Lastly, the equity paid to the partners would be secondary to accounts payable and the notes payable. Further proceeds from the dissolution the partnership must be used to accommodate these liabilities. Anthony Cases 3-2, 11-2, and Problem 5-7 Anthony Cases 3-2: Loan Pine Cafe (B) . Below is the income statement for the Lone Pine Cafe from November 2, 2005-March 30, 2006. [pic] *Notes regarding two calculations: a. Sales = $43,480 (cash) + $870 (accounts receivable) = $44, 350 b. Inventory (food beverage) = $10,016 (purchase from suppliers) + $1,583 (accounts payable) + $370 (which is the change from inventory of $2800-$2430) = $11,969. 2. This income st atement communicates to Mrs. Antoine that during this accounting period for operating the business, the business had a net loss. This resulted as the business expenses grossly exceeded the total sales revenues. Since the income statement and the balance sheet are said to articulate with one another, this income statement also validates the loss in cash during the same operating period found on the balance sheet. Therefore, in order for Mrs. Antoine to continue to operate her business, not only must she shore up her dissolved partnership and payoff the bank loan and accounts payable suppliers, but she must also find a way to lesson her expenses and generate more sales – therefore, providing her a positive net income. Anthony Case 11-2: Amerbran Company (A) 1. Below is the state of cash flows for Amerbran Company for the year ended December 31, 201. Please see in the following examples: the balance sheet with net change and then the cash flow statement). [pic] [pic] Anthony Problem 5-7 a. Quick Current Ratios are found below: [pic] Current Ratio = Current assets/Current liabilities = $125,200/$71,300 = 1. 76 Quick Ratio = Monetary current assets/Current liabilities = ($23,100 + 32,800 )/$71,300 = 0. 78 b. ) Number of days’ cash on hand: [pic] Days’ cash = Cash/(Total cash expenses/365) = $23,100/($231,000/365) = 36. 5 days c. ) Number of days’ worth of sales: Days’ receivables = Net receivables/ (Credit sales/365) = $32,800/($323,400 * . 77/365) = 48 days