Financial Accounting: An Integrated Statements Approach, 2nd Edition

A company’s stakeholders often differ in their financial statement focus. For example, some

stakeholders focus primarily on the income statement, while others may focus primarily on the

statement of cash flows or the balance sheet. For each of the following situations, indicate which

financial statement would be the likely focus for the stakeholder. Choose either the income state-

ment, balance sheet, or the statement of cash flows and justify your choice.

Situation One:Assume that you are considering investing in eBay(capital market

stakeholder).

Situation Two:Assume that you are considering purchasing a personal computer from Dell.

Situation Three:Assume that you are a banker for Citigroup(capital market stakeholder),

considering whether to grant a major credit line (loan) to Wal-Mart. The credit line will allow

Wal-Mart to borrow up to $400 million for a five-year period at the market rate of interest.

Situation Four:Assume that you are employed by Sara Lee Corporation(product market

stakeholder) and are considering whether to extend credit for a 60-day period to a new

grocery store chain that has recently opened throughout the Midwest.

Situation Five:Assume that you are considering taking a job (internal stakeholder) with either

SearsorJCPenney.

Starbucks Corporationpurchases and roasts high-quality whole bean coffees and sells them,

along with fresh, rich-brewed coffees and a variety of other complementary items, primarily

through company-operated retail stores.

The following items were adapted from the annual report of Starbucks Corporation for the

period ending October 3, 2004:

In thousands

1. Accounts payable $ 199,346


2. Accounts receivable 140,226


3. Accrued expenses payable 356,317


4. Additions to property, plant, and equipment 412,537


5. Inventories 422,663


6. Cost of sales 2,191,440


7. General and administrative expenses 304,293


8. Income tax expense 231,754


9. Net cash provided by operating activities 826,209


10. Net sales 5,294,247


11. Other income (loss) 74,797


12. Other operating expenses 460,830


13. Property, plant, and equipment 1,551,416


14. Retained earnings (October 3, 2004) 1,448,899


15. Store operating expenses 1,790,168

Using the following notations, indicate on which financial statement you would find each of the

above items. (Note: An item may appear on more than one statement.)

IS Income statement

RE Retained earnings statement

BS Balance sheet

SCF Statement of cash flows

Based on the Starbucks Corporationfinancial statement data shown in Exercise 1-22, prepare

an income statement for the year ending October 3, 2004.

36 Chapter 1 The Role of Accounting in Business

Exercise 1-22

Financial statement items

Goal 4

Exercise 1-23

Income statement

Goal 4

Net income, $390,559

Exercise 1-21

Using financial statements

Goal 4