The annual report of Starbucks Corporation for the year ended September 29, 2013, included information on seven
Question:
The annual report of Starbucks Corporation for the year ended September 29, 2013, included information on seven investments in which Starbucks generally held a 50 percent ownership interest. Thus these investments were not consolidated, but were reported as unconsolidated equity method investments. Summary data for Starbucks and for its equity method investments is as follows:
Equity method investments are carried as noncurrent assets on Starbucks’ balance sheet at \($450.9\) million on September 29, 2013. The notes to the financial statements also disclose the following (edited to reflect fiscal year 2013 data only):
Required
a. Assume Starbucks determines that it controls the seven investments. Prepare a working paper to consolidate Starbucks’ income statement and balance sheet with those of the seven companies. Assume that Starbucks owns 50 percent of each company, and that any excess of carrying value of equity investees over net book value is attributable to goodwill, which is shared equally between Starbucks and the noncontrolling interests. There is no goodwill impairment in 2013. The statement of cash flows reports that Starbucks received \($195.2\) million in dividends from the seven companies. Starbucks paid no dividends in 2013.
b. What percentage increase in total assets and in revenues would be reported by Starbucks had these seven companies been consolidated? Compute operating income and operating income as a percent of revenues for Starbucks and for the consolidated entity. Explain why they are different.
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