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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Analyzing Starbucks’s Inventory Disclosures Obtain Starbucks’s 2017 annual report either using the “Investor Relations” portion of its web site (do a Web search for Starbucks investor relations) or go to http://www.sec.gov and click “Search for company filings” under “Filings and Forms (EDGAR).”

Required:

  1. 1. What is the primary cost flow assumption that Starbucks uses: Discuss how the amounts reported under this assumption compare to amounts reported under alternative cost flow assumptions. Explain why you think Starbucks selected this method.
  2. 2. What type of inventory system—perpetual or periodic—do you think Starbucks uses?
  3. 3. Does Starbucks have any purchase commitments? If so, are they included in inventory?
  4. 4. Assume ending inventory for 2016 was $1,306.4 million. Compute the inventory turnover ratio for 2018 and 2017. What is your evaluation of the difference? (Round your answer to two decimal places.)
  5. 5. Recreate summary journal entries to record the transactions that affected inventory during 2018. (Assume all inventory purchases were on account.)

1.

To determine

Determine the primary cost flow assumption used by Corporation S. Explain the manner in which the amounts reported under this cost flow assumption are different under alternative cost flow assumptions and also explain the reasons behind the selection of the cost flow assumption by Corporation S.

Explanation

Inventory cost flow assumptions: These are the methods used by the companies to compute the cost assigned to inventory from the time inventory is bought to the time inventory is sold.

Corporation S primarily uses a moving average cost flow assumption. Since, the prices of the goods are based on an average of the goods available for sale...

2.

To determine

Identify the type of inventory system used by Corporation S.

3.

To determine

Identify whether Corporation S has purchase commitments and whether it is included in inventory or not.

4.

To determine

Compute the inventory turnover ratio for 2018 and 2017.

5.

To determine

Prepare summary journal entries to record the transactions that affected the inventory during the year.

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