Microsoft 2019 and 2016 annual reports tare used to answer these questions.

1. What was Microsoft's 2019 revenue? State in any format - Billions, millions etc. but indicate which.

2. What was Microsoft's 2019 research and development expense?

3. What was Income before taxes?

4. What was R&D as a percentage of sales?

5. What was R&D as a percentage of income before taxes?

6. One of the lessons of chapter 10 and 11 are that research and development is expensed. A hypothetical alternative (not allowed under generally accepted accounting principles) is to amortize over five years. Indicate the R&D for each of the past five years, including 2019, the total amount, as well as the average. The 2019 annual report will give you information for the past 3 years. Go to the 2016 annual report to get data for 2015 and 2016.

7. What would income before taxes be if Microsoft amortized R&D over 5 years (use the average you calculated above) rather than immediate expensing?

8. How much higher and lower would income before taxes be? Also indicate percentage difference.

9. Optional: comment on what you have learned. Are you in favor of current GAAP to expense R&D or would you prefer to capitalize and amortize. Explain your reasoning.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INCOME STATEMENTS (in millions, except per share amounts) Year Ended June 30, 2019 2018 2017 Revenue Product Service and other $ 66,069 59,774 125,843 $ 64,497 45,863 110,360 $ 63,811 32,760 96,571 Total revenue Cost of revenue: Product Service and other Total cost of revenue 16,273 26,637 42,910 82,933 16,876 18,213 4,885 15,420 22,933 38,353 72,007 14,726 17.469 4,754 Gross margin Research and development Sales and marketing General and administrative Restructuring Operating income Other income, net Income before income taxes Provision for income taxes 15,175 19,086 34,261 62,310 13,037 15,461 4,481 306 29,025 876 29,901 4,412 $ 25,489 42,959 729 43.688 4,448 $ 39,240 35,058 1,416 36,474 19,903 S 16,571 Net income $ $ 5.11 5.06 S $ 2.15 2.13 $ $ 3.29 3.25 Eamings per share: Basic Diluted Weighted average shares outstanding: Basic Diluted 7,673 7,753 7,700 7.794 7,746 7,832 Refer to accompanying notes