a. Given your knowledge of Starbucks key success and risk factors, use the note information presented above to evaluate Starbucks accounting quality. b. If you believe that Starbucks accounting policy does not yield measurements of assets and liabilities that reflect economic reality and a measurement of net income that is predictive of future earnings, suggest any changes that you would make to assets, liabilities, and earnings to improve accounting quality. (At this point in your learning process, if you do not have specific numerical adjustments to propose, at least describe potential journal entries you would make to change the financial statements, if any, and what information you might need to make those entries.) c. Evaluate whether your proposed adjustments are necessary for (1) credit analysis, (2) equity valuation, and (3) management evaluation.

486 Accounting Q ality c. Refe o Exhibit 6.25. Why is the restated amount of cash flow from operations for Yea cf $609 million less than the originally reported amount of $673 million? he analyst wanted to analyze changes in the structure of assets and equities be Year 8 and Year 9, which column and amounts in Exhibit 6.23 would he or she Explain e. If the analyst wanted to analyze changes in the operating profitability between Yea and Year 9, which column nd amounts in Ex hibi 5.24 would he or she use? Explain f. If the analyst wanted to use cash flow ratios assess short-term liquidity and long-ter olvency risk, which columns and amoun n Exhibit 6.25 would he or she use? Explain. INTEGRATIVE CASE 6 1 Starbucks Exhibi 26-1.28 of ntegrative Case Chapter he financial statemen presen Starbucks or 2009-2012. The follo wing presents the majority of the items Starbucks discu in its first note to the financial statements, "Summary of Significant Accounting Policies Note 1: Summary of Significant Accounting Policies Estimates and Assumptions eparing financiai stati ements in conformity with accounting generally accepte principles he United States cf America ("GAAP management to make estimates and assu requires tions that affect the reported amoun of assets, liab nd expenses. Exam es, revenues ples include, but are not limited to, estimates for a and goodwill impairments, stock-ba compensation forfeiture rates, future asset retirement obligation nd nventory reserv sumptions underlying self-insurance reserves and income from unredeemed stored va cards; and the potential outcome of future tax consequences of events that have been ec nized in financial statements. Actual outcomes may differ from these estimat an and assumptions Fair Value Fair value is the price we would receive to sell an asset or pay to transfer a ability (exit pri ord erly transaction between marke n an Fcr financial articipan and nstrument nvei ments that we record or disclose at fair value, we detemine fair value based upon the quoted market price as of the last day of the fiscal period, if available if a quoted market price is n ble for identical assets, we determine fair value based upon the quoted market price availa ssets or using a variety of other valuation me similar a odologies. We determine fai value auction rate se es using an internally developed valuation model ou Cu using inputs tha include interest rate cur credit and liquidity spreads, and effective maturity The carrying value of cash and cash equivalents approximates fa value because of th short-term nature of these instruments. The fair value of our long-term debt is estimated base on the quoted market p ces for th ues or on the curren e same or simila ates offered to us for debt of the same remaining maturities We measure our equity and co st method investments at fair value on a nonrecu ng basi when they are determined to be other-than temporarily impaired. Fa are determin valu sing available quoted market prices ar discounted cash fl Allowan ance fo and appli and Oc and $3.3 m Vento Inventories ar ory res betwi een phys nds, histo 30, 2012, $19 5 mi Property, perty, plan of property, pl aight-line m nt and 30 to est renewal period on periods. pose an ect renewal is reas appropriate on and distrib idated stater curred while oductive capa d, the asse ain or loss reco Goodwill We test goodwil quently if circum of store closures eval ating good he fa value not, we calculate goodwi exce tion s recorded As a part of containing good among other reas hold improvemen ng unit that cons is included in the uation of whethe 486 Accounting Q ality c. Refe o Exhibit 6.25. Why is the restated amount of cash flow from operations for Yea cf $609 million less than the originally reported amount of $673 million? he analyst wanted to analyze changes in the structure of assets and equities be Year 8 and Year 9, which column and amounts in Exhibit 6.23 would he or she Explain e. If the analyst wanted to analyze changes in the operating profitability between Yea and Year 9, which column nd amounts in Ex hibi 5.24 would he or she use? Explain f. If the analyst wanted to use cash flow ratios assess short-term liquidity and long-ter olvency risk, which columns and amoun n Exhibit 6.25 would he or she use? Explain. INTEGRATIVE CASE 6 1 Starbucks Exhibi 26-1.28 of ntegrative Case Chapter he financial statemen presen Starbucks or 2009-2012. The follo wing presents the majority of the items Starbucks discu in its first note to the financial statements, "Summary of Significant Accounting Policies Note 1: Summary of Significant Accounting Policies Estimates and Assumptions eparing financiai stati ements in conformity with accounting generally accepte principles he United States cf America ("GAAP management to make estimates and assu requires tions that affect the reported amoun of assets, liab nd expenses. Exam es, revenues ples include, but are not limited to, estimates for a and goodwill impairments, stock-ba compensation forfeiture rates, future asset retirement obligation nd nventory reserv sumptions underlying self-insurance reserves and income from unredeemed stored va cards; and the potential outcome of future tax consequences of events that have been ec nized in financial statements. Actual outcomes may differ from these estimat an and assumptions Fair Value Fair value is the price we would receive to sell an asset or pay to transfer a ability (exit pri ord erly transaction between marke n an Fcr financial articipan and nstrument nvei ments that we record or disclose at fair value, we detemine fair value based upon the quoted market price as of the last day of the fiscal period, if available if a quoted market price is n ble for identical assets, we determine fair value based upon the quoted market price availa ssets or using a variety of other valuation me similar a odologies. We determine fai value auction rate se es using an internally developed valuation model ou Cu using inputs tha include interest rate cur credit and liquidity spreads, and effective maturity The carrying value of cash and cash equivalents approximates fa value because of th short-term nature of these instruments. The fair value of our long-term debt is estimated base on the quoted market p ces for th ues or on the curren e same or simila ates offered to us for debt of the same remaining maturities We measure our equity and co st method investments at fair value on a nonrecu ng basi when they are determined to be other-than temporarily impaired. Fa are determin valu sing available quoted market prices ar discounted cash fl Allowan ance fo and appli and Oc and $3.3 m Vento Inventories ar ory res betwi een phys nds, histo 30, 2012, $19 5 mi Property, perty, plan of property, pl aight-line m nt and 30 to est renewal period on periods. pose an ect renewal is reas appropriate on and distrib idated stater curred while oductive capa d, the asse ain or loss reco Goodwill We test goodwil quently if circum of store closures eval ating good he fa value not, we calculate goodwi exce tion s recorded As a part of containing good among other reas hold improvemen ng unit that cons is included in the uation of whethe