Presented below is an excerpt from Starbucks’ Note 1, “Summary of Significant Accounting Policies,” in its September 28, 2008 Annual Report.

a. The above passages indicate that Starbucks generates revenues in several different ways. For each of the following customers, describe how Starbucks should recognize revenue and the working capital accounts that would likely be created by the revenue recognition approach. (For Items 1–6, ignore sales tax.)

1. Cash customer purchasing coffee at a Starbucks-owned retail store

2. Customer adding cash balance to her Starbucks card

3. Customer at Starbucks-owned retail store paying for coffee with a Starbuck’s card

4. Customer at Starbucks-owned retail store using the Duetto card (a co-branded

Visa/Starbucks credit card) to make a credit purchase of brewing equipment

5. Other businesses that purchase Starbuck’s products on credit

6. Licensed stores

7. Customer remitting sales taxes to Starbucks when purchasing coffee

b. Starbucks’ “gold-level” customers purchase 15 cups of coffee and then receive a free 16th cup of coffee. How should Starbucks account for this customer loyalty program? (Assume that the selling price for a cup of coffee is $2.20 and that the direct inventory cost per cup is $1.50.)