Accounting Cycle Iphone Case

Topics: Revenue, Generally Accepted Accounting Principles, Income statement Pages: 4 (870 words) Published: February 25, 2014
Accounting for the iPhone at Apple, Inc.
(HBS 9-111-003)

1. Exhibit 3 provides the journal entries under subscription accounting. Refer to the example in Exhibit 3.

a) Complete the following FSET assuming the Apple follows subscription accounting to account for iPhone’s sales revenue (separately for the transaction in Quarter 1 and in Quarters 2 to 8).

Balance SheetIncome Statement
TransactionCash Asset
+Noncash Assets-=Liabilities+Contrib. Capital+Earned CapitalRevenues-Expenses=Net Income Q1. iPhone Sales+500

-350
Inventory
+306.25
Deferred Costs
-=+437.5
Deferred Rev.+62.5

-43.75+62.5
iPhone Rev.-

+43.75
COGS=+62.5

-43.75
Q2-8. Deferred Rev.

-43.75
Deferred
Costs-=-62.5
Deferred
Rev.

+62.5

-43.75+62.5
Deferred Rev.-

+43.75
COGS
=+62.5

-43.75

b) Complete the following FSET assuming Apple recognizes all sales revenue from iPhone at the time of sale (i.e., only for quarter 1).

Balance SheetIncome Statement
TransactionCash Asset
+Noncash Assets-=Liabilities+Contrib. Capital+Earned CapitalRevenues-Expenses=Net Income Q1. iPhone Sales+500

-350
Inventory-=+500

-350+500
iPhone Rev.-

+350
COGS=+500

-350

c) If Apple recognizes 100% of iPhone revenue at the time of sale (i.e., the second method) instead of following subscription accounting, how would it affect Apple’s balance sheet and income statement in Q1? In particular, which line items on each statement would be affected, and in what direction? Refer to the actual balance sheet and income statement provided in the case (Exhibit 1) in answering this question.

The balance sheet in Exhibit 1 would show a larger increase in Retained Earning and a decrease in Unearned Revenue. The deferred costs within the Noncash Assets section would go to zero. Furthermore, the Q1 income statement...
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