Question
Experts from Starbucks Corporations tax note from the companys Forem 10-K for the year ended September 27, 2015, follow. Sep. 29, 2013 Fiscal Year Ended
Experts from Starbucks Corporations tax note from the companys Forem 10-K for the year ended September 27, 2015, follow.
Sep. 29, 2013 | |||||
Fiscal Year Ended | Sep.27, 2015 | Sep. 28, 2014 | Total | Litigation Charge | All Other |
Current taxes: | |||||
Federal | $801.0 | $822.7 | $616.6 | $616.6 | |
State | 150.1 | 132.9 | 93.8 | 93.8 | |
Foreign | 172.2 | 128.8 | 95.9 | 0.0 | 95.9 |
Total current taxes | 1,123.3 | 1,084.4 | 806.3 | 0.0 | 806.3 |
Deferred taxes: | |||||
Federal | 56.5 | 12.0 | (898.8) | (922.3) | 23.5 |
State | 4.0 | (4.9) | (144.0) | (148.7) | 4.7 |
Foreign | (40.1) | 0.5 | (2.2) | 0.0 | (2.2) |
Total deferred taxes | 20.4 | 7.6 | (1,045.0) | (1,071.0) | 26.0 |
Total provision for income taxes | $1,143.7 | $1,092.0 | ($238.7) | ($1,071.0) | $832.3 |
Sep. 29, 2013 | ||||||
Fiscal Year Ended | Sep.27, 2015 | Sep. 28, 2014 | Total | Litigation Charge | All Other | |
Statutory rate | 35.0% | 35.0% | 35.0% | 35.0% | 35.0% | |
State income tax, net of federal tax benefits | 2.8 | 2.6 | 15.8 | 3.5 | 2.4 | |
Benefits and taxes related to foreign operations | (2.1) | (1.9) | 37.5 | (3.4) | ||
Domestic production activity deduction | (2.2) | (0.7) | 8.1 | (0.7) | ||
Domestic tax credits | (0.2) | (0.2) | 2.8 | (0.3) | ||
Charitable contributions | (0.3) | (0.4) | 3.9 | (0.3) | ||
Gain resulting from acquisitions of joint venture | (3.7) | |||||
Other, net | 0.0 | 0.2 | 0.7 | 0.0 | (0.1) | |
Effective tax rate | 29.3% | 34.6% | 103.8% | 38.5% | 32.6% | |
Sep. 27, 2015 | Sep. 28, 2014 | ||
Deferred tax assets: | |||
Property, plant, and equipment | $121.4 | $78.5 | |
Accrued occupancy costs | 98.4 | 58.8 | |
Accrued compensation and related costs | 81.7 | 75.3 | |
Other accrued liabilities | 49.0 | 27.6 | |
Asset retainment obligation asset | 29.0 | 18.6 | |
Stored value card liability | 99.1 | 63.4 | |
Asset impairments | 26.6 | 49.5 | |
Tax credits | 20.8 | 20.3 | |
Stock-based compensation | 135.5 | 131.5 | |
Net operating losses | 93.4 | 104.4 | |
Litigation charge | 931.0 | 1,002.0 | |
Other | 104.5 | 77.0 | |
Total | 1,790.0 | 1,706.9 | |
Valuation allowance | (143.7) | (166.8 | |
Total deferred ta asset, net of valuation allowance | 1,646.3 | 1,540.1 | |
Deferred tax liabilities: | |||
Property, plant, and equipment | (217.5) | (148.2) | |
Intangible assets and goodwill | (177.3) | (92.9) | |
Other | (114.1) | (89.4) | |
Total | (508.9) | (330.5) | |
Net deferred tax asset | $1,138.4 | $1,209.6 | |
Reported as: | |||
Current deferred income tax assets | $381.7 | $317.4 | |
Long-term deferred income tax assets | 828.9 | 903.3 | |
Current deferred income tax liabilities (included in Accrued liabilities) |
(5.4) |
(4.2) | |
Long-term deferred income tax liabilities (included in Other long-term liabilities) |
(67.8) |
(6.9) | |
Net deferred tax assets | $1,137.4 | $1,209.6 |
Required:
- Provide a journal entry to record the aggregate income tax expense for the year ended September 27, 2015.
- What amount of Starbucks income tax expense for the year ended September 27, 2015 was deferred? Did this deferred result in an increase in deferred tax liabilities or a decrease in deferred tax assets?
- Estimate Starbucks earnings before taxes in the year ended September 27, 2015.
- What tax policy or operating decision accounts for the majority of the divergence between Starbucks statutory tax rate and effective tax rate?
- Forecast Starbucks effective tax rate for the year ended September 25, 2016.
- Starbucks included in its tax note the following statement:
Our effective tax rate in fiscal 2013 was significantly affected by the litigation charge we recorded as a result of the conclusion of our arbitration with Kraft. In order to provide a more meaningful analysis of tax expense and the effective tax rate, the tables above present separate reconciliations of the effect of the litigation charge.
What was the pre-tax amount of the litigation charge taken in fiscal 2013?
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