Following are the 2016 income statements for Apple Inc and Microsoft Corporation, competitors in the computer industry Use these financial statements to answer the required APPLE INC Income Statements (in millions) Sep 24, 2016 Sep 26, 2015 Sep 27, 2014 Net sales $ 215,639 $ 233,715 $ 182,795 Cost of sales 131,376 140,089 112,258 Gross margin 84,263 93,626 70,537 Operating expenses Research and development 10,045 8,067 6,041 Selling, general and administrative 14,194 14,329 11,993 Total operating expenses 24,239 22,396 18,034 Operating income 60,024 71,230 52,503 Other income (expense), net 1,348 1,285 980 Income before provision for income taxes 61,372 72,515 53,483 Provision for income taxes 15,685 19,121 13,973 Net income $ 45,687 $ 53,394 $ 39,510 MICROSOFT CORPORATION Income Statements (in millions) Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Revenue Product $61,502 $75,956 $72,948 Service and other 23,818 17,624 13,885 Total revenue 85,320 93,580 86,833 Cost of revenue Product 17,880 21,410 16,681 Service and other 14,900 11,628 10,397 Total cost of revenue 32,780 33,038 27,078 Gross margin 52,540 60,542 59,755 Research and development 11,988 12,046 11,381 Sales and marketing 14,697 15,713 15,811 General and administrative 4,563 4,611 4,677 Impairment, integration and restructuring 1,110 10,011 127 Operating income 20,182 18,161 27,759 Other income (expense), net (431) 346 61 Income before income taxes 19,751 18,507 27,820 Provision for income taxes 2,953 6,314 5,746 Net income $16,798 $12,193 $22,074 Problem 5 continued Required How do Apple Inc and Microsoft Corporation account for R D expenditures Apple Inc s and Microsoft Corporations R D expense includes many different types of costs List three specific costs included in R D expense on the income statement Compare R D expenses of the two companies (Hint determine the common size R D amounts Consider both direct R D expenses as well as acquired R D ) What trend do you notice in the R D expenses of each company over time

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APPLE INC. Income Statements
(in millions)	Sep. 24, 2016	Sep. 26, 2015	Sep. 27, 2014
Net sales	$ 215,639	$ 233,715	$ 182,795
Cost of sales	131,376	140,089	112,258
Gross margin	84,263	93,626	70,537
Operating expenses:
Research and development	10,045	8,067	6,041
Selling, general and administrative	14,194	14,329	11,993
Total operating expenses	24,239	22,396	18,034
Operating income	60,024	71,230	52,503
Other income/(expense), net	1,348	1,285	980
Income before provision for income taxes	61,372	72,515	53,483
Provision for income taxes	15,685	19,121	13,973
Net income	$ 45,687	$ 53,394	$ 39,510

MICROSOFT CORPORATION Income Statements
(in millions)	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2014
Revenue
Product	$61,502	$75,956	$72,948
Service and other	23,818	17,624	13,885
Total revenue	85,320	93,580	86,833
Cost of revenue
Product	17,880	21,410	16,681
Service and other	14,900	11,628	10,397
Total cost of revenue	32,780	33,038	27,078
Gross margin	52,540	60,542	59,755
Research and development	11,988	12,046	11,381
Sales and marketing	14,697	15,713	15,811
General and administrative	4,563	4,611	4,677
Impairment, integration and restructuring	1,110	10,011	127
Operating income	20,182	18,161	27,759
Other income (expense), net	(431)	346	61
Income before income taxes	19,751	18,507	27,820
Provision for income taxes	2,953	6,314	5,746
Net income	$16,798	$12,193	$22,074

Problem 5 continued:

Required:

How do Apple Inc. and Microsoft Corporation account for R&D expenditures?
Apple Inc.s and Microsoft Corporations R&D expense includes many different types of costs. List three specific costs included in R&D expense on the income statement.
Compare R&D expenses of the two companies. (Hint: determine the common-size R&D amounts. Consider both direct R&D expenses as well as acquired R&D.)
What trend do you notice in the R&D expenses of each company over time?