Starbucks is a coffee company—a big coffee company. During a 10-year period, the number of Starbucks locations in China grew from 24 to over 1,000. The following is adapted from Starbucks’s annual report for the year ended October 2, 2016, and dollars are reported in millions.

Assume that the following events occurred in the following quarter, which ended December 31, 2016. Dollars are in millions.

a. Paid $1,000 cash for additional intangible assets.

b. Issued additional shares of common stock for $10,000 in cash.

c. Purchased equipment; paid $4,000 in cash and signed additional long-term loans for $9,500.

d. Paid $800 cash for accounts payable owed at October 2.

e. Conducted negotiations to purchase a coffee farm, which is expected to cost $8,400.

Required:

1. Calculate Starbucks’s current ratio at October 2, 2016, prior to the transactions listed above. Based on this calculation and the analysis of Apple’s current ratio in the chapter, indicate which company is in a better position to pay liabilities as they come due in the next year.

2. Analyze transactions (a)–(e) to determine their effects on the accounting equation. Use the format shown in the demonstration case.

3. Record the transaction effects determined in requirement 2 using journal entries.

4. Using the October 2, 2016, ending balances (reported above) as the beginning balances for the October–December 2016 quarter, summarize the journal entry effects from requirement 3. Use T-accounts if this requirement is being completed manually; if you are using the general ledger tool in Connect, the journal entries will have been posted automatically to general ledger accounts that are similar in appearance to Exhibit 2.9. 

5. Explain your response to event (e).

6. Prepare a classified balance sheet at December 31, 2016.

7. Use your response to requirement 6 to calculate Starbucks’s current ratio after the transactions listed in (a)–(e). Based on this calculation and the calculation in requirement 1, indicate whether the above transactions increase or decrease the company’s ability to pay liabilities as they come due in the next year.

8. As of December 31, 2016, has the financing for the investment in assets made by Starbucks primarily come from liabilities or stockholders’ equity?

Exhibit 2.9:

Transcribed Image Text:

Accounts Payable Accounts Receivable Cash Common Stock Equipment Intangible Assets $4,150 770 $1,380 3,200 Inventory Notes Payable (long-term) Notes Payable (short-term) Prepaid Rent Retained Earnings Short-Term Investments 2,130 400 630 4,530 5,040 350 5,950 130 General Ledger Acct. 186 Software Debit Credit 9,000 Date Explanation Ref. Balance General Journal Page G1 Aug. 29 G1 9,000 Account Titles Date and Explanation Ref. Debit Credit General Ledger Acct. 100 Cash Software Cash Accounts Payable (Bought app using cash and credit.) Aug. 29 186 9,000 100 4,000 Date Explanation Ref. Debit Credit Balance Aug. 1 Aug. 2 Aug. 3 Aug. 5 Aug. 29 10,000 9,700 G1 10,000 201 5,000 G1 300 G1 20,000 29,700 24,700 G1 5,000 G1 4,000 20,700 General Ledger Acct. 201 Accounts Payable Date Explanation Ref. Debit Credit Balance 9,600 Aug. 4 Aug. 5 Aug. 29 G1 9,600 4,600 9,600 G1 5,000 G1 5,000