Question

The recent balance sheet for Starbucks shows $24 billion in assets, $23 billion in liabilities, and $1 billion in Owners' Equity. (Another way to state it is $24,000,000,000 in assets, $23,000,000,000 in liabilities, and $1,000,000,000 in Owners' Equity.) Their recent income statement shows $25 billion in revenue, $20 billion in expenses, and $5 billion in net income. Please number your answers as you address each of the following requirements.

- Does the company's balance sheet balance according to the fundamental accounting equation? Support your answer by using the dollar amounts above.

- Describe at least two examples of an asset and two examples of a liability that Starbucks might show on its balance sheet. Please go beyond simply stating the name of the account by also describing what the account represents (for example, "furniture" is an asset account and represents the cost of furniture used in the business such as tables and chairs at Starbucks).

- Using the information provided above, describe how Starbucks calculated net income on the income statement, and show dollar amounts to support your answer.

- Describe at least two examples of products that Starbucks might sell to earn revenue, and two expenses Starbucks might incur.

Answer 1

Question 1: Does the company's balance sheet balance according to the fundamental accounting equation? Support your answer by using the dollar amounts above.

Answer: Yes, the balance of Company’s Balance sheet are in accordance with the fundamental accounting equation which is written as under

Assets = Liabilities + Capital

$24,000,000,000 = $23,000,000,000 + $1,000,000,000

Question 2: Describe at least two examples of an asset and two examples of a liability that Starbucks might show on its balance sheet. Please go beyond simply stating the name of the account by also describing what the account represents (for example, "furniture" is an asset account and represents the cost of furniture used in the business such as tables and chairs at Starbucks)

Answer: Two examples of assets for starbucks are as follows

· Machines: these are assets for the starbucks, as these are used in preparation of food for its customers these may include the oven, coffee machines, fridge, etc. such type of assets are current assets.

· Building: these are also the assets for the starbucks, which are purchased by them to run their outlet. It will be a non current asset.

Two examples of Liabilities for starbucks are as follows

· Creditors: these are the persons/enterprises from whom the starbucks may purchase the raw materials/or products on credit. These are the current liabilities.

· Bank Loan: starbucks may take loan from banks to have sufficient working capital so that it can run its day to day business activities smoothly.

Question 3 Using the information provided above, describe how Starbucks calculated net income on the income statement, and show dollar amounts to support your answer

Answer: Net Income is calculated as follows:

Net Income = Sales – Expenses

Net Income = $25 billion - $20 billion

Net Income = $ 5 Billion.

Question 4 Describe at least two examples of products that Starbucks might sell to earn revenue, and two expenses Starbucks might incur

Answer : two examples of products that Starbucks might sell to earn revenue:

· Coffee

· Sandwich

· Pizza

· pasta

Two examples of expenses that Starbucks might incur

· Employee’s Salary : These may be the salary of the cook, waiter, accountant etc.

· Advertisement expense: these are the expenses that the starbucks might incur to encourage public to visit the starbucks

· Repair & Maintenance : due to breakup in the machinery, it may need the repair or maintenance, it may also include the annual AMC charge for the upkeep of their equipments.