Analyzing and Interpreting Income Components and Disclaimers

The income statement for Xerox Corporation follows:

Notes:

The income statement includes sales of Xerox copiers and revenue earned by a finance subsidiary that provides loan and lease financing to the sale of those copiers.

Equity in net income of unconsolidated affiliates refers to income Xerox has earned on investments in affiliated (but unconsolidated) companies.

Required:

a. Xerox reports several sources of income. How should revenue be recognized for each of these business activities? Explain.

b. Compute the relative size of sales revenue (total) and of revenue from outsourcing, service and rentals. Hint: Scale each type of revenue by total revenue. What observations can be made about the different sources of revenue?

c. Xerox reports research, development, and engineering expenses (R&D) each year. Compare R&D spending over the three years. Hint: Scale R&D by total revenue each year.

d. Xerox reports restructuring costs each year. (1) Describe the three typical categories of restructuring costs and the accounting for each. (2) How do you recommend treating these costs for analysis purposes? (3) Should regular recurring restructuring costs be treated differently than isolated occurrences of such costs for analysis purposes? (4) What does a (negative) expense imply about one or more previous years accruals?

e. Xerox reports $256 million in expenses in 2012 labeled as Other expenses, net. How can a company use such an account to potentially obscure its actual financed performance?

Please answer all parts of the question, math and written! Thank you!