Question

In Chapter 6 you learned about revenue recognition as well as evaluating receivable balances and establishing an allowance for bad debts. Access Starbucks 10-K and answer the following (hint: you will need to explore the first footnote):

10-K link: https://www.sec.gov/Archives/edgar/data/829224/000082922414000041/sbux-9282014x10k.htm#s6571E5A222BF69F5F8068EA40E001FDA

Starbucks has provided detail for 3 categories of net revenue shown on the income statement. List each category and provide a brief summary of each category, including information such as (but not limited to): the amount of revenue in the category for the most recent year, description of revenue stream, when revenue is recognized, how it is recognized (net of what type of items) etc.

Answer 1

Firstly the 3 categories of the Revenue are:

• Company - Operated stores

• Licensed stores

• CPG, Food Services and other

To discuss in detail:

1. Company - Operated Stores:

• This is the revenue derived by the stores which are operated by the stores itself.

• Company-operated store revenues are recognized when payment is tendered at the point of sale.

• Company-operated store revenues are reported net of sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities.

• Amount for the fiscal year ended Sept 28,2014 - $ 12,977.9

2. Licensed Store Revenues:

• Licensed store revenues consist of product and equipment sales to licensees, as well as royalties and other fees paid by licensees to use the Starbucks brand.

• Sales of coffee, tea and related products are generally recognized upon shipment to licensees, depending on contract terms. Shipping charges billed to licensees are also recognized as revenue, and the related shipping costs are included in cost of sales including occupancy costs in the consolidated statements of earnings.

• Initial nonrefundable development fees for licensed stores are recognized upon substantial performance of services for new market business development activities, such as initial business, real estate and store development planning, as well as providing operational materials and functional training courses for opening new licensed retail markets.

• Additional store licensing fees are recognized when new licensed stores are opened.

• Royalty revenues based upon a percentage of reported sales, and other continuing fees, such as marketing and service fees, are recognized on a monthly basis when earned.

• Amount for the fiscal year ended Sept 28,2014 - $ 1,588.6

3.CPG, Foodservice and Other Revenues:

• CPG, foodservice and other revenues primarily include sales of

o Packaged coffee and tea

o Variety of ready-to-drink beverages and single-serve coffee and tea products to grocery, warehouse clubs and specialty retail stores

o Sales to our national foodservice accounts

o Revenues from sales of products to and license fee revenues from manufacturers that produce and market Starbucks and Seattle’s Best Coffee branded products through licensing agreements.

• Sales of coffee, tea, ready-to-drink beverages and related products to grocery and warehouse club stores are generally recognized when received by the customer or distributor, depending on contract terms.

• Revenues are recorded net of sales discounts given to customers for trade promotions and other incentives and for sales return allowances, which are determined based on historical patterns.

• Revenues from sales of products to manufacturers that produce and market Starbucks and Seattle’s Best Coffee branded products through licensing agreements are generally recognized when the product is received by the manufacturer or distributor.

• License fee revenues from manufacturers are based on a percentage of sales and are recognized on a monthly basis when earned. National foodservice account revenues are recognized, when the product is received by the customer or distributor.

• Sales to customers through CPG channels and national foodservice accounts, including sales to national distributors, are recognized net of certain fees paid to the customer. These fees is characterized as a reduction of revenue unless we are able to identify a sufficiently separable benefit from the customer's purchase of our products such that we could have entered into an exchange transaction with a party other than the customer in order to receive such benefit, and we can reasonably estimate the fair value of such benefit.

• Amount for the fiscal year ended Sept 28,2014 - $ 1,881.