Starbucks Unit 1 Flashcards
Assume that on September 30, 2019, the first day of the next fiscal year, Starbucks paid $30 million of cash for product placement on the television show The
Voice that will begin in January 2020. What two line items on the balance sheet would be affected by this transaction, by what amount and in which direction (increase or decrease)? How would this affect the totals for Assets, Liabilities and Owners’ Equity?
Cash and cash equivalents would decrease by $30.0
Prepaid expenses and other current assets would increase by $30.0
There would be no change in Total Assets, Total Liabilities, or Owners’ (Shareholders’) Equity
Assume that on September 30, 2019, the first day of the next fiscal year, Starbucks purchased $50 million of coffee beans “on account.” What two line items on the balance sheet would be affected by this transaction, by what amount and in which direction (increase or decrease)? How would this affect the totals for Assets, Liabilities and Owners’ Equity?
Inventories would increase by $50.0
Accounts payable would increase by $50.0
Both Total Assets and Total Liabilities would increase by $50.0; Owners’ Equity would not change
Assume that on September 30, 2019, the first day of the next fiscal year, Starbucks paid $25 million for coffee purchased on account in the prior year. What two line items on the balance sheet would be affected by this transaction, by what amount and in which direction (increase or decrease)? How would this affect the totals for Assets, Liabilities and Owners’ Equity?
Cash and cash equivalents would decrease by $25.0
Accounts payable would decrease by $25.0
Both Total Assets and Total Liabilities decrease by $25.0; Owners’ Equity would not change
A Balance Sheet reports financial position at a…
point in time. (It shows the owners’ net worth, which is the difference between what they own and what they owe)
A Income Statement reports a financial position…
over a period of time (information about changes in net worth that result from transactions with others)
Assume that on June 15, 2019 Starbucks sold packaged coffee beans for $5 million in cash to Safeway to sell in their stores. This cash is an inflow to Starbucks. What line item on the Balance Sheet would increase by $5 million as a result of this transaction? What line item on the Income Statement would increase by $5 million as a result of this transaction?
“Cash and cash equivalents,” an asset, would increase by $5 million on the Balance Sheet.
“Net revenues: Other,” a revenue, would increase by $5 million on the Income Statement. “Net revenues: Other” is described in financial statement Note 1: Summary of significant accounting policies. They include royalty revenues, sales of packaged coffee, tea and ready-to-drink beverages and other items sold outside of owned and licensed stores.
Assume that the coffee supplied to Safeway in the previous transaction originally cost Starbucks $3 million when it was purchased from the growers. This is an outflow to Starbucks. What line item on the Balance Sheet would decrease by $3 million as a result of this transaction? What line item on the Income Statement would increase by $3 million as a result of this transaction?
“Inventories,” an asset, would decrease by $3 million on the Balance Sheet.
“Cost of sales,” a type of expense, would increase by $3 million on the Income Statement.
What is the net effect of this coffee sale to Safeway on “Earnings/(loss) before income taxes” on Starbucks’ Income Statement? Did it increase or decrease, and by how much?
“Earnings before income taxes” would increase by $2 million ($5 million revenue - $3 million cost of sales).
Assume that on March 15, 2019 Starbucks sold packaged coffee beans for $15 million on account to Kroger who will, in turn, sell them in their stores. This is an
inflow to Starbucks. What line item on the Balance Sheet would increase by $15 million as a result of this transaction? What line item on the Income Statement would increase by $15 million as a result of this transaction?
“Accounts receivable, net,” an asset, would increase by $15 million on the Balance Sheet. “Net revenues: Other,” a revenue, would increase by $15 million on the Income Statement.
(“Inventories,” an asset, would decrease on the Balance Sheet. “Cost of sales,” a type of expense, would increase on the Income Statement. However, the question does not provide information about the cost of the beans sold to Kroger.)
Assume that Starbucks has an agreement with Barnes and Noble to permit Barnes and Noble to operate licensed Starbucks stores in their bookstores. Under this agreement, Barnes and Noble will pay Starbucks $25 million for each month by the tenth day of the next month. Thus, Barnes and Noble will pay for September 2019 by October 10, 2019. What will be the effect of this license agreement for September 2019 on the September 29, 2019 Balance Sheet and Income Statement? Ignore any adjustment that might be made to reflect the one day, September 30, that remains in the month.
“Accounts receivable, net,” an asset on Starbucks’ Balance Sheet, will be higher on September 29, 2019, by $25 million reflecting Barnes and Noble’s obligation to pay Starbucks.
“Net revenues: Licensed stores” a revenue on Starbucks’ Income Statement, will be higher on September 29, 2019, by $25 million for the revenue earned during September.
Assume that on January 21 you walk into a local Starbucks store, buy a gift card for $20 and walk out without getting any coffee during that visit. How would this affect Starbucks’ Balance Sheet? How would this affect Starbucks’
Income Statement?
“Cash and cash equivalents,” an asset on Starbucks’ Balance Sheet would increase by $20 for the cash received. “Stored value card liability and current portion deferred revenue,” a liability on Starbucks’ Balance Sheet would also increase by $20 to reflect Starbucks’ obligation to provide goods, such as coffee, when the gift card is redeemed.
There would be no effect on Starbucks’ Income Statement because no revenue has been earned or expense incurred on January 21.
Now assume that two days later you return to Starbucks and buy a beverage for $5, paying with the gift card you purchased on January 21. How would this affect Starbucks’ Balance Sheet? How would this affect Starbucks’ Income Statement?
“Stored value card liability and current portion deferred revenue,” a liability on Starbucks’ Balance Sheet would decrease by $5 to reflect Starbucks’ reduced obligation to provide goods in the future.
“Company-operated stores,” a type of revenue, would increase by $5 on Starbucks’ Income Statement to reflect the revenue earned by providing the beverage.
Starbucks would also account for the expense of providing you with the beverage, but we ignore that here because the problem provides no information about the expenses.
Assume that the Starbucks store on 24th Street in Austin is company-owned and that the monthly rent is $5,000, due on the tenth day of the following month. Also assume that Starbucks will record this expense in the accounting system on the last
day of each month. Using March 31 as an example, what line items in Starbucks’ Balance Sheet and Income Statement would be affected by recording this expense for the month of March, by how much, and in what direction?
“Accrued liabilities” would increase by $5,000 on Starbucks’ Balanced Sheet to reflect the rent incurred but not yet paid.
“Store operating expenses” would increase by $5,000 on Starbucks’ March Income Statement.
Assume that Starbucks paid their March 31 rent accounted for as above on April 10. What line items in Starbucks’ Income Statement and Balance Sheet would be affected by recording this payment, by how much, and in what direction?
“Cash and cash equivalents” and “Accrued liabilities” would decrease by $5,000 on Starbucks’ Balance Sheet to reflect payment of the rent obligation.
There would be no effect on Starbucks’ April Income Statement for March rent paid in April.
Assume that Starbucks buys insurance for its stores in one large policy for which they pay $3 million for a six-month policy. The payment is made in advance of
the six-month coverage period. For example, on April 1, they paid $3 million for insurance coverage for April through September. What line items in Starbucks’ Balance Sheet and Income Statement would be affected by recording this payment for insurance on April 1, by how much, and in what direction?
“Cash and cash equivalents,” an asset, would decrease by $3 million and “Prepaid expenses and other current assets,” also an asset, would increase by $3 million on Starbucks’ Balanced Sheet to reflect payments made in advance for insurance.
There would be no effect on Starbucks’ Income Statement for prepaid insurance.
