In: Accounting
Analyzing and Interpreting Income Components and
Disclosures
The income statement for Xerox Corporation follows.
Year ended December 31 (in millions) | 2010 | 2009 | 2008 |
---|---|---|---|
Revenue | |||
Equipment sales | $3,857 | $3,550 | $4,679 |
Supplies, paper and other | 3,377 | 3,096 | 3,646 |
Sales | 7,234 | 6,646 | 8,325 |
Service, outsourcing and rentals | 13,739 | 7,820 | 8,485 |
Finance income | 660 | 713 | 798 |
Total Revenues | 21,633 | 15,179 | 17,608 |
Cost and expenses | |||
Cost of sales | 4,741 | 4,395 | 5,519 |
Cost of service, outsourcing and rentals | 9,195 | 4,488 | 4,929 |
Equipment financing interest | 246 | 271 | 305 |
Research, development and engeineering expenses | 781 | 840 | 884 |
Selling, administrative and general expenses | 4,594 | 4,149 | 4,534 |
Restructuring and asset impairment charges | 483 | (8) | 429 |
Acquisition-related costs | 77 | 72 | -- |
Amortization of intangible assets | 312 | 60 | 54 |
Other expenses, net | 389 | 285 | 1,033 |
Total Cost and Expenses | 20,818 | 14,552 | 17,687 |
Income (Loss) before Income Taxes, and Equity Income | 815 | 627 | (79) |
Income tax expenses (benefits) | 256 | 152 | (231) |
Equity in net income of unconsolidated affiliates | 78 | 41 | 113 |
Net income | 637 | 516 | 265 |
Less: Net income attributable to noncontrolling interests | 31 | 31 | 35 |
Net Income attributable to Xerox | $606 | $485 | $230 |
(a) Which of the following best describes how sales, service, and finance revenues should be recognized?
Sales, service, and finance revenues should be recognized when cash is collected.
Sales, service, and finance revenues are recognized when earned, regardless of when cash is collected.
Sales and service revenues are recognized when the sale is made or the service is performed. Finance revenues are recognized when the loan is initially made.
Sales and finance revenues are generally recognized when the sale is made and the loan is extended to the customer. Service revenues are deferred until the end of the service contract, at which time they are recognized in full.
Mark 1.00 out of 1.00
(b) Compute the relative size of Sales revenue (total) and of
revenue from Service, outsourcing and rentals. Hint: Scale each
type of revenue by Total revenue.
Round percentage answers to one decimal place (ex: 0.2345 = 23.5%).
Revenue in $ millions | As % of Total Revenue | ||||||
---|---|---|---|---|---|---|---|
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||
Sales | $Answer | $Answer | $Answer | Answer % | Answer % | Answer % | |
Service, outsourcing and rentals |
$Answer | $Answer | $Answer | Answer % | Answer % | Answer % | |
Total Revenues |
$Answer | $Answer | $Answer |
(c) Which of the following best summarizes our conclusion about the
potential use of "other expense" accounts to obscure actual
financial performance.
We need not worry about the reporting of "other expense" accounts because the threshold for materiality is so low that the majority of items are not classified in such accounts.
Companies are not allowed to commingle income increasing and income decreasing accounts as this would reduce the usefulness of such an account.
Companies are not required to separately disclose revenue and expense items unless they are deemed to be material. Such aggregation may reduce the usefulness of income statements.
GAAP does not permit the use of "other expense" accounts because they are not specific enough.
need help solving this .. thank you