Starbucks Corporation's Financial Statements (partial)

Consolidated Income Statements In millions of dollars
		Year ended Sept. 27, 2020		Year ended Sept. 29, 2019		Year ended Sept. 30, 2018
Net Sales		$ 23,518.0		$ 26,508.6		$ 24,719.5
Cost of goods sold		7,694.9		8,526.9		7,930.7
Selling, general, and administrative expenses		14,261.4		13,903.8		12,905.5

Consolidated Balance Sheets In millions of dollars
ASSETS		As of Sept. 27, 2020		As of Sept. 29, 2019
Cash and cash equivalents		$ 4,350.9		$ 2,686.6
Short-term investments		281.2		70.5
Accounts receivable, net		883.4		879.2
Inventories		1,551.4		1,529.4
Prepaid expenses and other current assets		739.5		488.2
Total current assets		$ 7,806.4		$ 5,653.9

Notes to Consolidated Financial Statements (partial)

Footnote 1. Summary of Significant Accounting Policies

1.1 Description of Business

We purchase and roast high-quality coffees that we sell, along with handcrafted coffee and tea beverages and a variety of fresh and prepared food items, through our company-operated stores. We also sell a variety of coffee and tea products and license our trademarks through other channels such as licensed stores, grocery and foodservice.

1.3 Fiscal Year

Our fiscal year ends on the Sunday closest to September 30. Fiscal year 2020 ended on September 27, 2020, fiscal year 2019 ended on September 29, 2019, and fiscal year 2018 ended on September 30, 2018.

1.11 Inventories

The Company values inventories at the lower of cost or net realizable value using the first-in, first-out ("FIFO") method.

Use Starbucks most recent financial statements to answer the following three questions.

1. Which inventory cost flow assumption does Starbucks use to value its inventories?

   1. LIFO

   2. FIFO

   3. Weighted Average Cost

   4. Specific Identification

2. What is the most likely reason that Starbucks chose this inventory cost flow assumption (given rising price trend)?

   1. To report higher Net Income on its Income Statement.

   2. To report higher Total Assets on its Balance Sheet.

   3. To pay less taxes.

   4. Both a and b are true.

3. Which of the following statements about Starbucks is TRUE?

   1. Fiscal year 2020 Gross Profit < Fiscal year 2019 Gross Profit.

   2. Fiscal year 2020 COGS > Fiscal year 2019 COGS.

   3. Fiscal year 2019 Gross Profit < Fiscal year 2018 Gross Profit.

   4. Fiscal year 2019 Operating Income < Fiscal year 2018 Operating Income.

   5. Both a and c are true.