CASES and PROJECTS

C1-46. (40 minutes)

a.

For the years ended September 30,2020 and October 1, 2019 b. 2020 stockholders’ equity: $29,374.5 mil. – $37,173.9 mil. = $(7,799.4) mil. stockholders’ equity: $19,219.6 mil. -- $25,450.6 mil. = $(6,231) mil.

/ [(-$7,799.4 + d. 2019 ROE restated: ($3,594.6 - $2,000) / [(-$6,231 - $2,000 + $1,175.8)/2] = -45.20% e. The primary cost to Starbucks of disclosing information about the pending litigation is that the disclosure may cause potential investors and creditors to hold a less favorable view of the company. A concern about the disclosure is that such disclosure may actually affect the outcome of the litigation.

The unrecorded potential litigation cost of $2,000 is subtracted from the net income number and from the 2019 stockholders’ equity amount to arrive at this number. This does not take into account the effect of income taxes.

The primary benefit to disclosure is that by disclosing information about the lawsuit before its completion, the company cannot be accused of withholding relevant information from stakeholders. This prevents potential lawsuits from investors or creditors and contributes to the company’s reputation for reliable financial reporting.