Analyzing and Interpreting Income Components and Disclosures The income statement for Xerox Corporation follows. Year ended December 31 (in millions) 2008 2007 2006 Revenues Sales $8,325 $8,192 $7,464 Service, outsourcing and rentals 8,485 8,214 7,591 Finance income 798 822 840 Total Revenues 17,608 17,228 15,895 Cost and expenses Cost of sales 5,519 5,254 4,803 Cost of service, outsourcing and rentals 4,929 4,707 4,328 Equipment financing interest 305 316 305 Research, development, and engeineering expenses 884 912 922 Selling, administrative and general expenses 4,534 4,312 4,008 Restructuring and asset impairment charges 429 (6) 385 Acquisition-related costs Amortization of intangible assets 54 Other expenses, net 1,033 295 336 Total Cost and Expenses 17,687 15,790 15,087 Income (Loss) before Income Taxes, and Equity Income (79) 1,438 808 Income tax expenses (benefits) (231) 400 (288) Equity in net income of unconsolidated affiliates 113 97 114 Net income 265 1,135 1,210 Less: Net income attributable to noncontrolling interests 35 Net Income attributable to Xerox $230 $1,135 $1,210 (a) Which of the following best describes how sales, service, and finance revenues should be recognized? Sales, service, and finance revenues are recognized when earned, regardless of when cash is collected. Sales, service, and finance revenues should be recognized when cash is collected. Sales and service revenues are recognized when the sale is made or the service is performed. Finance revenues are recognized when the loan is initially made. Sales and finance revenues are generally recognized when the sale is made and the loan is extended to the customer. Service revenues are deferred until the end of the service contract, at which time they are recognized in full. b) Compute the relative size of Sales revenue (total) and of revenue from Service, outsourcing and rentals. Hint: Scale each type of revenue by Total revenue. Round percentage answers to one decimal place (ex: 0.2345 = 23.5%). Revenue in $ millions As % of Total Revenue 2008 2007 2006 2008 2007 2006 0 $ 0 $ 0 0 % 0% Service, outsourcingand rentals $ 0 $ 0 $ 0$ 0 0 0% 0% 0% TotalRevenues $ 0 $ 0 $ 0 Sales 0% c) Which of the following best summarizes our conclusion about the potential use of "other expense" accounts to obscure actual financial performance. We need not worry about the reporting of "other expense" accounts because the threshold for materiality is so low that the majority of items are not classified in such accounts. Companies are not required to separately disclose revenue and expense items unless they are deemed to be material. Such aggregation may reduce the usefulness of income statements. Companies are not allowed to commingle income increasing and income decreasing accounts as this would reduce the usefulness of such an account. GAAP does not permit the use of "other expense" accounts because they are not specific enough. Check