Starbucks generates revenues in many different ways. In addition to owning its own stores, it licenses other companies to sell Starbucks brewed and ground coffees, teas, and other products.
a. 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 1–5, 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 Starbucks card
(4) Other businesses that purchase Starbucks’ products on credit
(5) Licensed stores
(6) 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.)
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