Apple Inc. designs, manufactures, and markets personal computers, mobile communication devices, and portable digital music and video players and sells a variety of related software, services, peripherals, and networking solutions. The Company sells its products worldwide through its online stores, its retail stores, its direct sales force, and third-party wholesalers, resellers, and value-added resellers. Your parents are considering investing in Apple Inc. common stock. They ask you, as an accounting expert, to make an analysis of the company for them. Apples financial statements and 10-K file are provided.

Instructions: (1) Concept review (a) In your own words, define Revenues. Explain how revenues are different from gains.

(b) What is performance obligation and how is it related to revenue recognition?

(c) In general, what incentives do managers have to make self-serving revenue recognition choices?

(2) Make a 3-year trend analysis, using 2011 as the base year, of (1) net sales and (2) net income. Comment on the significance of the trend results.

(3) What information outside the annual report may also be useful to your parents in making a decision about Apple?