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Analyzing and Interpreting Income Components and Disclosures The income statement for Xerox Corporation follows. Year ended...

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

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Expert Solution

(c)


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