MERCK & COMPANY, INC.

Year 9 Selected Financial Data ($ millions)

Income Statement Data

Sales revenue .......................................................................$7,120

Depreciation ......................................................................... 230

Interest expense ................................................................... 10

Pretax income....................................................................... 2,550

Income taxes ........................................................................ 900

Net income ........................................................................... 1,650

Balance Sheet Data

Current assets...................................................................... $4,850

Fixed assets, net................................................................... 2,400

Total assets.............................................................. 7,250

Current liabilities................................................................. 3,290

Long-term debt..................................................................... 100

Shareholders' equity............................................................. 3,860

Total liabilities & shareholders' equity................ . 7,250

Required:

i. Calculate return on common equity for Year 9 using year-end amounts and assuming

no preferred dividends. 5

ii. Explain with examples deferred revenue and revenue recognition criteria.