17. [Deferred revenue] Microsoft defers a portion of the sales price of some products and services over
Question:
17. [Deferred revenue] Microsoft defers a portion of the sales price of some products and services over the product life cycle. Deferred revenue includes technical support, unspecified enhancements (such as service packs and Internet browser up- dates), maintenance, and other subscription contracts, including organization license agreements. . During the fourth quarter of 1999, Microsoft Adopted SOP 98-9, changing the method used to allocate fair value to undelivered elements, thereby increasing rev- enue recognized on shipment by $190 million, Extended the life cycle of Windows, decreasing reported revenue by $90 million, and Reduced estimated product returns by $250 million due to declining risk of product returns from distributors and re- sellers.
a. Using the data provided in Exhibit 2P-3 and any additional assumptions you need, calculate the revenue growth rate for each year based on: (i) Revenues as reported (ii) Revenues assuming no deferral
b. Discuss the effect of the 1999 accounting changes on re- ported revenue growth in: (i) 1999 (ii) 2000
Step by Step Answer:
The Analysis And Use Of Financial Statements
ISBN: 9780471375944
3rd Edition
Authors: Gerald I. White, Ashwinpaul C. Sondhi, Haim D. Fried