Exhibits 1.26–1.28 of Integrative Case 1.1 (Chapter 1) present the financial statements for Starbucks for 2005–2008. Starbucks explains several components of its income during those years in the following notes to the financial statements:

Required

a. Starbucks reports “Restructuring Charges” in its 2008 Income Statement. Assuming a tax rate of 35 percent, discuss whether you would eliminate the charge when forecasting the future earnings of Starbucks. If so, what adjustments would you make to the income statement, balance sheet, and statement of cash flows?

b. Starbucks reports a “Cumulative Effect of an Accounting Change” in its 2006 Income Statement, the last year in which such changes were reported as a separate line item on the income statement. What is the reason for the change? Assuming a tax rate of 35 percent, discuss whether you would eliminate the cumulative effect when assessing Starbucks’ current profitability. If so, what adjustments would you make to the income statement, balance sheet, and statement of cash flows. How would you treat the cumulative effect when forecasting the future earnings of Starbucks?

c. Starbucks reports a new line item on its balance sheet beginning in 2007 entitled “Insurance Reserves.” Do the changes in this account affect the income statement? If so, describe the likely effect of this account on the income statement and discuss whether you would eliminate the charge when forecasting the future earnings of Starbucks.

d. Examine Starbucks’ Note 13 description of comprehensive income. How would you treat the comprehensive income items when forecasting Starbucks’ future financial statements?

e. Starbucks lists all of the new pronouncements that may or may not affect its current and future financial statements. Read each pronouncement and discuss how each change might affect the analyst’s task of forecasting Starbucks’ future earnings.