MICROSOFT CORPORATION 7372 - SERVICES-PREPACKAGED SOFTWARE 10-k report- http://w

Question

MICROSOFT CORPORATION

7372 - SERVICES-PREPACKAGED SOFTWARE

10-k report- http://www.sec.gov/Archives/edgar/data/789019/000119312513310206/0001193125-13-310206-index.htm

Using this information answer the following question:

Income Statement (You will find the answer of most of the questions from Income Statement):

a. Read the footnotes to the financial statements. What is your company's revenue recognition policy?

b. What subtotals does your company report on its income statement?

c. What amount of revenue was earned for the most recent year?

d. What is the amount of the largest expense on the income statement for the most recent year? Please briefly describe the transaction represented by the expense.

e. What is the amount of net income for the most recent year?

f. What is your company's earnings per share (basic only) for the three years reported?

Explanation / Answer

(a) Company's revenue recognition policy

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.

Revenue for retail packaged products, products licensed to original equipment manufacturers (“OEMs”), and perpetual licenses under certain volume licensing programs generally is recognized as products are shipped or made available.

Technology guarantee programs are accounted for as multiple element arrangements as customers receive free or significantly discounted rights to use upcoming new versions of a software product if they license existing versions of the product during the eligibility period. Revenue is allocated between the existing product and the new product, and revenue allocated to the new product is deferred until that version is delivered. The revenue allocation is based on the vendor-specific objective evidence (“VSOE”) of fair value of the products. The VSOE of fair value for upcoming new products are based on the price determined by management having the relevant authority when the element is not yet sold separately, but is expected to be sold in the near future at the price set by management.

(b) Subtotal of income statement = Revenue from operations + other income

= $77849 + 288 = $78137

(c) Total revenue earned during the year was $ 78137. $77849 from ordinary operations and 288 as other income.

(d) Sales and marketing expense amounting $15276 is the largest expense on the income statement for the most recent year.

Sales and Marketing

Sales and marketing expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with sales and marketing personnel, and the costs of advertising, promotions, trade shows, seminars, and other programs. Advertising costs are expensed as incurred. Advertising expense was $2.6 billion, $1.6 billion, and $1.9 billion in fiscal years 2013, 2012, and 2011, respectively.

(e) Amount of Net income = $ 21,863

(f) Earnings per share reported:

Basic (A/B)

Diluted (A/C)

Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

Earnings Per Share   

Basic (A/B)

   $ 2.61    $ 2.02    $ 2.73   

Diluted (A/C)

   $ 2.58    $ 2.00    $ 2.69   

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