Question

Starbucks is a coffee company—a big coffee company. During a 10-year period, the number of Starbucks locations in China grew from 24 to over 1,000. The following is adapted from Starbucks’s annual report for the year ended October 2, 2016, and dollars are reported in millions.

Accounts Payable	$	5,150
Accounts Receivable		600
Cash		2,960
Common Stock		430
Equipment		4,180
Intangible Assets		3,250
Inventory		1,510
Notes Payable (long-term)		2,060
Notes Payable (short-term)		1,670
Prepaid Rent		610
Retained Earnings		4,540
Short-Term Investments		740

Assume that the following events occurred in the following quarter, which ended December 31, 2016. Dollars are in millions.

1. Paid $1,400 cash for additional intangible assets.
2. Issued additional shares of common stock for $10,800 in cash.
3. Purchased equipment; paid $4,800 in cash and signed additional long-term loans for $9,700.
4. Paid $880 cash for accounts payable owed at October 2.
5. Conducted negotiations to purchase a coffee farm, which is expected to cost $8,700.

1. 1-a. Calculate Starbucks’s current ratio at October 2, 2016, prior to the transactions listed above. (Round your answer to 2 decimal places.)

Answer 1

Answer 1-a)

Current Ratio is obtained by dividing Current assets with current liabilities.

Current Ratio = Current Assets / Current Liabilities

Here, we need to compute current ratio at October 2,2016. (Dollars are in Millions)

Current assets includes cash,inventory,Prepaid expenses,Accounts receivable,Short-term investments etc..

Current Assets = $600 + $2,960 + $1,510 + $610 + $740 = $6,420

Current liabilities includes all those liabilities which are to be paid within a year (short term).

Current liabilities = $5,150 + $1,670 = $6,820

Current Ratio = Current Assets / Current Liabilities

  = $6,420 / $6,820

  = 0.94

Starbucks current ratio at October 2 , 2016 is  0.94.