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Partners Breslin and Crane have a coin-operated laundry business in a retail shopping center, BB Laundry. The business has operated for several years with the

Partners Breslin and Crane have a coin-operated laundry business in a retail shopping center, BB Laundry. The business has operated for several years with the partners sharing income equally. They employ two part-time workers. The part-time employees work alternating shifts and are only there if either Breslin or Crane is present. The laundry business is primarily a cash business. On alternate days each partner empties the coins from the laundromats machines and deposits them in the bank. The business was generating a healthy cash flow for several years. However, in the last 18 months, cash flow declined precipitously. Crane believes that the decline in cash is a result of collusion between the two part-time workers. Crane assumes that the workers are somehow rigging the machines and requiring the customers to pay them directly. When Crane shares these concerns with Breslin, Breslin assures Crane that the part-time workers are not stealing money. Breslin has been pocketing cash because of some personal financial problems related to a messy divorce and several failed investments. Breslin is urging Crane to sell out and liquidate their partnership. Breslin believes that upon liquidation there will have enough cash to overcome the personal financial crisis and repay the cash that has been taken from the business. Crane is not aware of Breslins financial problems. The following trial balance is prepared by the partners accountant. Dr (Cr) Cash $37,800 Supplies and prepayments 2,500 Equipment 62,000 Accumulated depreciation (33,583) Accounts payable (4,950) Loan payableCrane (22,000) Sales (23,620) Operating expenses 18,700 Depreciation expense 2,583 CapitalBreslin (14,680) CapitalCrane (24,750) Totals $0 In addition, the partnership has a contractual lease on the building where the laundromat is located. The lease expires five years from now. The monthly payments of $500 are consistently made on time and recorded as part of operating expense. If the lease is terminated early, the lessor requires a $2,000 payment for early lease termination. Required: 1. Identify the weakness in the partnerships internal control which could produce the pattern of declining cash flows. How could the partnership correct the internal control weakness? Explain. 2. Do you think fraud has occurred? Or an ethical breach? Explain. 3. What are the various ways of resolving the ethical issues? There must be at least two distinct recommendations (more than 2 is fine). Discuss each. 4. Which one of the recommendations is the best resolution for the ethical issue? Why? Explain. 5. Using Excel: Determine the ending capital balances and prepare a cash distribution plan for the liquidation. 6. Show the calculations in the cell(s). 7. How much must be realized on the sale of the non-cash assets before Breslin receives any of the liquidation proceeds? Do you think it is likely that Breslin will receive any proceeds? Do you think Breslin will be able to repay the cash that has been taken? Consider the best- and worst-case scenarios. Explain.

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