Problems. For each of the problems, provide answers as required. Point values for each problem are shown. Be sure to show your calculations and/or provide explanations, as required. Question 1. (10 points). The footnotes to the July 30, 2016 financial statements of Cisco Systems, Inc. include the following paragraphs related to leases and accounting rules changes: D Financing Receivables and Guaraotees The Company provides financing arrangements, including leases, financed service contracts, and loans, for certain qualified end-user customers to build, maintain, and upgrade their networks. Lease receivables primarily represent sales-type and direct-financing leases. Leases have on average a four-year term and are usually collateralized by a security interest in the underlying assets, while loan neceivables generally have terms of up to throe years. Financed service contracts typically have terms of one to three years and primarily re late to technical support services Leases In Febnuary 2016, the FASB issued an accounting standard update related to leases nequiring lessees to recognize operating and financing lease liabilities on the balance sheet, as well as corresponding right-of-use assets. The new lease standard also makes some changes to lessor accounting and aligns key aspects of the lessor accounting model with the revenue recognition standard. In addition, disclosures will be required to enable users of financial statements to assess the amount, timing. and uncertainty of cash flows arising from keases. The accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2020 on a modified retrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its Consolidated Financial Statements. 7. Financing Receivables and Operating Leases (a) Financing Receivables Financing receivables primarily consist of lease receivables, loan receivables, and financed service contracts and otherLease receivables represent sales-type and direct-financing leases resulting from the sale of the Company's and complementary third- party products and are typically collateralized by a security interest in the underlying assets. Loan receivables represent financing arrangements related to the sale of the Company's products and services, which may include additional funding for other costs associated with network installation and integration of the Company's products and services, Lease receivables consist of arrangements with terms of four years on average, while loan receivables generally have terms of up to three years. The financed service contracts and other cate gory includes financing receivables related to technical support and advanced services, as well as receivables related to financing of eertain indirect costs associated with leases. Revenue related to the technical support services is typically deferred and included in deferred service revenue and is recognized ratably over the period during which the related services are to be performed, which typically ranges from one to three years. A summary o the Company's financing receivables is presented as follows (in millions). Lease Receivahles Lean Receivables Financed Service Contracts and Other July 30, 2016 Total 8,777 3,272 202 (174) (230) 3,070S 2.135 S 3370 S 202 (174) (375) 8.430 Residual value Unearned income (97) (48) Total, net 2,038 $ 3,322 $ Reported as: Current 1.794 $ 1,528 3.322 $ 4,272 4,158 S 1.490 $ 1.580 3,070 S 988 $ 1,050 2,038 $ 8.430