Question
Following are the 2019 income statements for Katy Com and Mike Com, competitors in the computer industry. Use these financial statements to answer the required.
Following are the 2019 income statements for Katy Com and Mike Com, competitors in the computer industry. Use these financial statements to answer the required.
Katy Com Income Statements |
|
|
(in millions) | Sept. 24, 2019 |
| Sept. 26, 2018 |
| Sept. 27, 2017 |
|
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 |
|
Mike Com Income Statements |
|
|
(in millions) | June 30, 2019 |
| June 30, 2018 |
| June 30, 2017 |
|
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 |
|
Required:
a. | How do the two companies account for R&D expenditures? |
b. | Katys and Mike's R&D expense includes many different types of costs. List three specific costs included in R&D expense on the income statement. |
c. | Compare R&D expenses of the two companies. What trend do you notice in the R&D expenses of each company over time? (Hint: determine the common-size R&D amounts. Consider both direct R&D expenses as well as acquired R&D.) |
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