Starbucks Corporation is the premier roaster, marketer, and retailer of specialty coffee in the world, operating in 68 countries. Starbucks generates revenues through company-operated stores, licensed stores, and consumer packaged goods. In 2015, revenues from company-operated stores accounted for 79% of total revenues. Starbucks states that its retail objective is to be the leading retailer and brand of coffee and tea by selling the finest quality coffee, tea, and related products. In addition, the company strives to provide the Starbucks Experience by exemplifying superior customer service and providing clean and well maintained stores. Part of this experience involves providing free internet service to customers while they are enjoying their food and beverages.
Requirements
1. How would the cost of internet service be reported by Starbucks and on which financial statement?
2. Suppose Starbucks receives a bill from its internet service provider but has not yet paid the bill. What would be the effect on assets, liabilities, and equity when Starbucks receives this bill?
3. What would be the effect on assets, liabilities, and equity when Starbucks pays its internet service bill?
4. Suppose Starbucks expects that the cost of internet service will increase by 4% in the coming year. What would be the impact on Starbucks' net income? How might Starbucks overcome this impact?