Intermed Accounting I
Intermed Accounting I ACTG 350
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This 3 page Class Notes was uploaded by Julien Weber on Tuesday September 8, 2015. The Class Notes belongs to ACTG 350 at University of Oregon taught by Staff in Fall. Since its upload, it has received 45 views. For similar materials see /class/187274/actg-350-university-of-oregon in Accounting at University of Oregon.
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Date Created: 09/08/15
Kevin Teel Discussion 3 1 Microsoft lists revenues on one line item where as GE lists 6 line items under revenue on the income statement GE included these line items because they want to distinguish to their shareholders how each revenue stream performs This is because each of these streams whether goods or services are a signi cant portion of the total revenue Microsoft may only include one line item as revenue because their different revenue streams are highly integrated They may not want investors to be critical of different revenue streams pushing the company in certain directions Microsoft lists Sales and marketing as a line item under Operating expenses where as GE does not list it as separate line item on the income statement This may be because Microsoft wants shareholders to know that they are using resources to advertise new products in a constantly changing market For GE this may not be as important for shareholders to know This could potentially be misleading to GE shareholders who prefer an emphasis on making sure that consumers know about the company s products Microsoft separates total cash and shortterm investments total current assets and total assets on the balance sheet GE does not This allows the user of the Microsoft financial statements to more easily see the liquidity of their assets Where as users of GE s financial statements have to do extra work to really understand the liquidity of the company s assets GE lists all intangible assets in one line item on the balance sheet Microsoft lists goodwill separately from intangible assets This is because it accounts for 85 of their intangible assets This value would be important for the user of the balance sheet to recognize GE lists earnings per share amounts before and after accounting changes Microsoft only lists earnings per share This is because GE wants shareholders to see how their earnings per share are affected by these changes 2 GE Current ratio 386777 181827 2127 2003 415499 176530 2354 Debt equity ratio 506065 63706 7944 2003 562523 79180 7104 Return on equity 2002 Operating income 18891 63706 0297 Net income 14118 63706 0222 2003 Operating income 19904 79180 0251 Net income 15002 79180 0189 Microsoft Current ratio 2003 58973 13974 4220 2004 70566 14969 4714 Debt equity 003 16820 64912 0259 2004 17564 74825 0235 Return on equity 2003 Operating income 9545 64912 0147 Net income 7531 64912 0116 2004 Operating income 9034 74825 0121 Net income 8168 74825 0109 The current ratio went up for both companies This means that they are either increasing assets or decreasing liabilities The debt equity ratio is decreasing for both companies also This suggests that both companies have performed well either bringing liabilities down or an increase in stock price The return on equity ratio suggest that both companies began to use their resources less efficiently Comparing the operating to net incomes also shows us that GE has higher expenses beyond operating costs 3 Marketbook ratio Microsoft 2004 74825 56396 1327 GE 2003 79180 669 118358 Priceeamings ratio Microsoft 2004 2607 076 2723 GE 2003 0067 15 0045 DiVidend yield Microsoft 2004 8168 GE 2003 15002 The marketbook ration shows that GE shows a much lower amount on their books in comparison to the market and Microsoft shows a more relatively equal amount for market and book price I could not nd the numbers for cash dividends 4 Microsoft lists no balance for both years under commitments and contingencies Users of these nancial statements may interpret this in several ways It could mean that they had a balance there and want to emphasize it or they are hinting at a predicted balance for that line item 5 The first subsequent event listed by Microsoft includes charges of 750 million pre tax related to the Time Warner settlement and 115 billion in impairments of investments The second subsequent event listed by Microsoft includes stockbased compensation charges of 22 billion for the employee stock option transfer program The third subsequent event listed by Microsoft includes charges of 253 billion pretaX related to the Sun Microsystems Inc settlement and a fine imposed by the European Commission In each case these numbers were probably included because of the materiality and the fact that it came from events that occurred during the reporting period but were simply not finalized until after the end of the accounting period but before the financial statements were released The respective amouts will affect the financial statements by either increasing liabilities accounts payable or decreasing assets cash 6 The information regarding contra accounts is listed under in the notes to the financial statements Allowance for doubtful accounts is listed under note 1 for 166 million Accumulated depreciation is listed under note 7 for 4163 million I was unable to find the listing for accumulated amortization 7 Information regarding the Intertrust lawsuit is found under note 17 The appropriate journal entry for this interaction is as follows Loss 440 million Intangible assets 266 million Cash 174 million I do not think that it fits the definition of an asset Assuming that the license did not cost them 266 million the asset should only be valued at cost of securing the license I do however feel that with a name such as Microsoft there could conceivably be similar items that do not fit the technical definition of an asset but do hold value
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