case statburk
INTEGRATIVE CASE 2.1
STARBUCKS
ACCT218
a. Assuming that Starbucks had no significant permanent differences between book income and taxable income, did income before taxes for financial reporting exceed or fall short of taxable income for 2012? Explain.
Taxable income before income tax is $2,059 million, and taxable income should minus $674.4 million. So income before taxes exceeds taxable income.
b. Will the adjustment to net income for deferred taxes to compute cash flow from operations in the statement of cash flows result in an addition or subtraction for 2012?
There will be a subtraction from net income for deferred taxes to compute cash flow.
c. Starbucks rents retail space for its coffee shops. It must recognize rent expense as it uses rental facilities but cannot claim an income tax deduction until it pays cash to the landlord. Suggest the scenario that would give rise to a deferred tax asset instead of a deferred tax liability related to occupancy cost – Accrued Occupancy Cost.
No lease payment in the beginning of the rent. As a result, the company recognizes rent expense earlier for financial reporting than for income tax reporting in order for Starbucks to report deferred tax assets.
d. Starbucks recognizes an expense related to retirement benefits as employees rendered services but cannot claim an income tax deduction until it pays cash to a retirement fund. Why do the deferred taxes for deferred compensation appear as a deferred tax asset – Accrued Compensation and Related Costs? Suggest possible reasons why the deferred tax asset decreased slightly between the end of 2011 and the end of 2012.
Company can contribute cash to a retirement fund in later years, it can claim an income tax deduction. The decreasing amount of the deferred tax asset in could be.
Starbucks reports deferred revenue for sales of stored value cards, such as the Starbucks Card and gift certificates. These amounts are taxed when collected, but not recognized in financial
STARBUCKS
ACCT218
a. Assuming that Starbucks had no significant permanent differences between book income and taxable income, did income before taxes for financial reporting exceed or fall short of taxable income for 2012? Explain.
Taxable income before income tax is $2,059 million, and taxable income should minus $674.4 million. So income before taxes exceeds taxable income.
b. Will the adjustment to net income for deferred taxes to compute cash flow from operations in the statement of cash flows result in an addition or subtraction for 2012?
There will be a subtraction from net income for deferred taxes to compute cash flow.
c. Starbucks rents retail space for its coffee shops. It must recognize rent expense as it uses rental facilities but cannot claim an income tax deduction until it pays cash to the landlord. Suggest the scenario that would give rise to a deferred tax asset instead of a deferred tax liability related to occupancy cost – Accrued Occupancy Cost.
No lease payment in the beginning of the rent. As a result, the company recognizes rent expense earlier for financial reporting than for income tax reporting in order for Starbucks to report deferred tax assets.
d. Starbucks recognizes an expense related to retirement benefits as employees rendered services but cannot claim an income tax deduction until it pays cash to a retirement fund. Why do the deferred taxes for deferred compensation appear as a deferred tax asset – Accrued Compensation and Related Costs? Suggest possible reasons why the deferred tax asset decreased slightly between the end of 2011 and the end of 2012.
Company can contribute cash to a retirement fund in later years, it can claim an income tax deduction. The decreasing amount of the deferred tax asset in could be.
Starbucks reports deferred revenue for sales of stored value cards, such as the Starbucks Card and gift certificates. These amounts are taxed when collected, but not recognized in financial