Question:
Excerpts from Starbucks Corporation's tax note from the company's Form 10-K for the year
C13-5 ended September 27, 2015, follow.
Required:
1. Provide a journal entry to record the aggregate income tax expense for the year ended September 27, 2015.
2. What amount of Starbucks' income tax expense for the year ended September 27, 2015, was deferred? Did this deferral result in an increase in deferred tax liabilities or a decrease in deferred tax assets?
3. Estimate Starbucks' earnings before taxes in the year ended September 27, 2015.
4. What tax policy or operating decision accounts for the majority of the divergence between Starbucks' statutory tax rate and effective tax rate?
5. Forecast Starbucks' effective tax rate for the year ended September 25, 2016.
6. Starbucks included in its tax note the following statement: Our effective tax rate in fiscal 2013 was significantly affected by the litigation charge we recorded as a result of the conclusion of our arbitration with Kraft. In order to provide a more meaningful analysis of tax expense and the effective tax rate, the tables above present separate reconciliations of the effect of the litigation charge.
What was the pre-tax amount of the litigation charge taken in fiscal 2013?
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Sep. 29, 2013 Fiscal Year Ended Sep. 27, 2015 Sep. 28, 2014 Total Litigation ChargeAll Other Current taxes: Federal State $ 801.0 150.1 72.2 1,123.3 8227 616.6 93.8 132.9 128.8 1,084.4 S616.6 93.8 95.9 806.3 Total current taxes Deferred taxes: Federal State Foreign Total deferred taxes Total provision for income taxes 12.0 23.5 (898.8) (144.0) (2.2) (1,045.0) (922.3) (148.7) 2.2) 26.0 7.6 (1,071.0) 143 31.0920 238.7 Sep. 29, 2013 Fiscal Year Ended Sep. 27, 2015 Sep. 28, 2014 Total 35.0% 2.8 35.0% 15.8 Litigation ChargeAll Other 35.0% 2.4 35.0% 3.5 rate State income taxes, net of federal tax benefit Benefits and taxes related to foreign operations Domestic production activity deduction Domestic tax credits Charitable contributions Gain resulting from acquisition of joint venture Other, net Effective tax rate (0.2) (0.3) (3.7) (0.7) (0.2) (0.4) (0.7) (0.3) (0.3) 2.8 103.8% 32.6% Sep. 27, 2015 Sep. 28, 2014 Deferred tax assets Property, plant and equipment Accrued occupancy costs Accrued Other accrued liabilities Asset retirement obligation asset Stored value card liability Asset impairments Tax credits Stock-based compensation Net operating losses Litigation charge $ 78.5 58.8 75.3 98.4 compensation and re lated costs 49.0 18.6 49.5 20.8 135.5 93.4 931.0 104.5 1,790.0 (143.7) 1,646.3 131.5 104.4 1,002.0 77.Ο 1,706.9 (166.8) 1,540.1 Total Valuation allowance Total deferred tax asset, net of valuation allowance Deferred tax liabilities: Property, plant and equipment Intangible assets and goodwill Other Total Net deferred tax asset (217.5) (177.3) (148.2) (92.9) (89.4) (330.5) $1,209.6 (508.9) $1,137.4 Reported as: Current deferred income tax assets Long-term deferred income tax assets Current deferred income tax liabilities (included S 381.7 828.9 $ 317.4 903.3 in Accrued liabilities) (5.4) (4.2) Long-term deferrred income tax liabilities (included (67.8) $1,137.4 in Other long-term liabilities) (6.9) $1,209.6 Net deferred tax asset