Year ended December 31 (in millions) 2007 2006 2005 Revenues Sales 58.192 $7.464 $7.400 8.214 7.591 7,426 822 840875 17.228 15,895 15.701 Service, outsourcing and rentals Finance income Total Revenues Cost and expenses Cost of sales Cost of service, outsourcing and rentals Equipment financing interest Research, development and engeineering expenses Selling, administrative and general expenses Restructuring and asset impairment charges Other expenses, net Total Cost and Expenses Income from Continuing Operations before Income Taxes. Equity Income. Discontinued Operations and Cumulative Effect of Change in Accounting Principle Income tax expenses (benefits) Equity in net income of unconsolidated affiliates Income from Continuing Operations before Discontinued Operations and Cumulative Effect of Change in Accounting Principle Income from Discontinues Operations, net of tax Cumulative Effect of Change in Accounting Principle, net of tax Net Income 5.254 4803 4,695 4,707 4.328 4.207 316 305 326 912 922 943 4,312 4008 4.110 (6) 385 366 295 336 224 15.790 15,087 14.871 Support 1,438 400 97 908 (288) 114 830 (5) 98 1.135 1.210 933 $1,135 51.210 5975 (a) Which of the following best describes how sales, service, and finance revenues should be recognized? Sales, service, and finance revenues should be recognized when cash is collected. Sales and service revenues are recognized when the sale is made or the service is performed. Finance revenues are recognized when the loan is initially made. Sales and finance revenues are generally recognized when the sale is made and the loan is extended to the customer. Service revenues are deferred until the end of the service contract, at which time they are recognized in full. Sales, service, and finance revenues are recognized when earned, regardless of when cash is collected. Support (b) Compute the relative size of Sales revenue (total) and of revenue from Service, outsourcing and rentals. Hint: Scale each type of revenue by Total revenue. Round percentage answers to one decimal place (ex: 0.2345 - 23.5%). Revenue in millions As of Total Revenue 2007 2006 2005 2007 2006 2005 Sales 05 Service outsourcingand rentals $ Total Revenues OS (c) Which of the following best summarizes our conclusion about the potential use of other expense accounts to obscure actual financial performance. Support Companies are not required to separately disclose revenue and expense items unless they are deemed to be material. Such aggregation may reduce the usefulness of income statements. We need not worry about the reporting of "other expense" accounts because the threshold for materiality is so low that the majority of items are not classified in such accounts. Companies are not allowed to commingle income increasing and income decreasing accounts as this would reduce the usefulness of such an account. GAAP does not permit the use of other expense" accounts because they are not specific enough. Check
