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Exam 5: Revenues, Receivables, and Operating Expenses

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Question 1

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The 2017 Form 10-K of Oracle Corporation, for the May 31, 2017 year-end, included the following information relating to their allowance for doubtful accounts: Balance in allowance at the beginning of the year $327 million, accounts written off during the year of $137 million, balance in allowance at the end of the year $319 million. What did Oracle Corporation report as bad debt expense for the year?

A) $27 million
B) $129 million
C) $118 million
D) $151 million
E) None of the above

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Question 2

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Heller Corporation has aged its accounts receivable and estimated uncollectible accounts as follows (in millions): a. Determine the appropriate allowance for uncollectible accounts. b. How will Heller Corporation report its accounts receivable on the balance sheet?

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b. Heller Corporation's b...

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Following are the 2016 income statements for Apple Inc. and Microsoft Corporation, competitors in the computer industry. Use these financial statements to answer the required. Continued next page Required: a. How do Apple Inc. and Microsoft Corporation account for R&D expenditures? b. Apple Inc.'s and Microsoft Corporation's R&D expense includes many different types of costs. List three specific costs included in R&D expense on the income statement. c. Compare R&D expenses of the two companies. (Hint: determine the common-size R&D amounts. Consider both direct R&D expenses as well as acquired R&D.) d. What trend do you notice in the R&D expenses of each company over time?

McKinnon Enterprises owns a professional ice hockey team, the Rockford Penguins. The company sells season tickets for its upcoming season and receives $960,000 cash. The season starts January 1, 2018, with five home games occurring monthly over the next six months. How much revenue will McKinnon Enterprises recognize from its season ticket sales through the end of April 2018?

Companies that engage in long-term sales contracts such as construction projects often use the cost-to-cost method to recognize revenue. This means that revenue is recognized in proportion to the project's completion.

Apple, Inc. reported research and development expense of $10,045 million on its 2016 income statement. This expense included many types of costs. Which of the following types of costs would not be included in the $10,045 million?

Overestimating the allowance for uncollectible accounts receivable can shift income from the current period into one or more future periods.

Leggett & Platt, Inc. reported net sales of $3,749.9 million in 2016 and $3,917.2 million in 2015. The asset side of the balance sheet follows. Use this information to answer the required. Required: a. What is the company's gross amount of receivables at the end of 2016 and 2015? b. Compute the common-size amount for gross accounts receivable, for both years. Interpret the year-over-year change in this ratio. c. Compute the allowance for doubtful accounts to gross accounts receivable, for both years. Interpret the year-over-year change in this ratio. d. Based on the ratios you calculated, form an opinion about the quality of the company's accounts receivable.

Define the accounts receivable turnover and the days sales outstanding ratios. What do these ratios tell us about a company's accounts receivable?

Identify when each of the following companies should recognize revenue. a. Valero Energy - integrated petroleum company that sells crude oil, natural gas and petroleum and chemical products under short-term agreements at prevailing market prices b. Boeing - airplane manufacturer whose revenue is derived largely from long-term fixed-price contracts with airlines c. Wells Fargo - large commercial bank that earns interest on loans d. Ford Motor Company - manufactures and retails automobiles, provides financing for dealers and customers

The 2016 annual report of Leahy Enterprises included the following disclosure: During fiscal 2016, the U.S. dollar strengthened relative to the other principal currencies in which we transact business with the exception of the Indian rupee. What effect did these currency fluctuations have on Leahy Enterprises' 2016 consolidated income statement?

The asset side of the 2017 balance sheet for Oracle Corporation is below. The company reported total revenues of $37,728 million in 2017 and $37,047 million in 2016. Use this information to answer the required. Required: a. What is the company's gross amount of receivables at the end of 2017 and 2016? b. Compute the common-size amount for gross accounts receivable, for both years. Interpret the year-over-year change in this ratio. c. Compute the allowance for doubtful accounts to gross accounts receivable, for both years. Interpret the year-over-year change in this ratio. d. Based on the ratios you calculated, form an opinion about the quality of the company's accounts receivable.

In Spring 2017, Bava Construction signed a contract with the city of Springfield, to construct a new city hall for $200 million. Bava expects to construct the building within two years and incur expenses of $150 million, which means the company earns a $50 million profit on the contract. The city of Springfield paid $50 million when the contract was signed, $100 million within the next six months, and the final $50 million exactly one year from the signing of the contract. Bava incurred $60 million in costs during 2017 and rest in 2018 to complete the contract on time. Using the cost-to-cost method how much revenue should Bava recognize in 2017? What profit from the Springfield contract, will the company report each year?

A seller, acting as an agent for another company by selling the company's goods on consignment, recognizes the gross amount of the sale as revenue.

On December 31, 2017, Tri-State Construction Inc. signs a contract with the state of West Virginia Department of Transportation to manufacture a bridge over the New River. State anticipates the construction will take three years. The company's accountants provide the following contract details relating to the project: During the three-year construction period, Tri-State incurred costs as follows: Compute the revenue recognized, construction costs expensed, and income earned for each year using the cost-to-cost method.

Revenue from a foreign subsidiary will be smaller in U.S. dollars when the dollar strengthens relative to the foreign currency.

When is the cost-to-cost method an appropriate method to recognize revenues. What are some of the potential risks associated with this practice?

The financial statement effects for uncollectible accounts occur when the company writes off the account because that is when all the uncertainty is resolved.

The 2016 financial statements of Leggett & Platt, Inc. include the following information in a footnote. What are the company's current gross accounts and other receivables at the end of 2016? A) $486.6 million B) $479.4 million C) $452 million D) $493.8 million E) None of the above

On its 2016 income statement, Abbott Laboratories reported research and development expense of $1,422,000,000. Which of the following statements must be true?