Starbucks Corporation (NASDAQ: SBUX) is the premier roaster, marketer, and retailer of specialty coffee in the world, operating in 84 countries. Starbucks Corporation generates revenues through company-operated stores, licensed stores, and consumer packaged goods. In fiscal year 2021, revenues from company-operated stores accounted for 85% of total revenues, while the other 15% of total revenues was earned from the company’s licensed stores and the sale of its packaged coffee and tea outside company stores. Starbucks Corporation states that its retail objective is to be the leading retailer and brand of coffee and tea by selling the finest quality coffee, tea, and related products. In addition, the company strives to provide the Starbucks Experience by exemplifying superior customer service and providing clean and well-maintained stores. Part of this experience involves providing free Internet service to customers while they are enjoying their food and beverages. Visit http://www.pearsonhighered.com/Horngren for a link to Starbucks Corporation’s annual report for the year ending October 3, 2021.

Requirements 

1. How would the cost of Internet service be reported by Starbucks Corporation and on which financial statement?

2. Suppose Starbucks Corporation receives a bill from its Internet service provider but has not yet paid the bill. What would be the effect on assets, liabilities, and equity when Starbucks Corporation receives this bill?

3. What would be the effect on assets, liabilities, and equity when Starbucks Corporation pays its Internet service bill?

4. Suppose Starbucks Corporation expects that the cost of Internet service will increase by 4% in the coming year. What would be the impact on Starbucks Corporation’s net income? How might Starbucks Corporation overcome this impact?