1. Teaching Presentation: Revenue Recognition for Apple Dov Fischer, Ph.D. CPA March 9, 2016

2. Disclosure of Key Accounting Policies Revenue recognition (Spiceland et al, Ch.5) – Identify the revenue line on the income statement – relevant footnotes (e.g. accounting policies for product returns, products in shipment to customer) Accounting changes (ch.20) – How does the company plan to implement the new revenue recognition standards?

4. Revenue recognition (Spiceland et al, Ch.5) – Identify the revenue line on the income statement – While this is not the income statement, it does contain a lot of useful, condensed data for the last 5 years.

5. Revenue recognition (Spiceland et al, Ch.5) – Identify the revenue line on the income statement – $233,715,000,000 or $233.7 billion

6. Revenue recognition (Spiceland et al, Ch.5) – relevant footnotes (e.g. accounting policies for product returns, products in shipment to customer) Let’s search the 10-K for Revenue Recognition

7. Page 33 New revenue recognition standards (will choose between retrospective adjustment or cumulative effect)

8. Page 36 – Revenue recognition (goods in transit)

9. Page 37 – Revenue Recognition (price protection, expected returns)

10. Page 48 (revenue recognition – gift cards)

11. Page 48 – Revenue Recognition (Multiple Deliverables – hardware, software, upgrades and additional services )

12. Deferred Revenue Current DR grew from $8.5 billion to almost $9 billion Non-current DR grew from $3 billion to $3.6 billion Total increase of about $1.1 billion

13. Deferred revenue on the statement of cash flows

14. For tax purposes, deferred revenue is not recognized (it is taxed in the period before it is recognized, resulting in a deferred tax asset, which grew by around $150 million, representing the taxes paid on the deferred revenue)

15. What did we learn? Where to look for revenue on the income statement and selected financial data Accounting policies – Goods in transit – Expected returns – Multiple deliverables – Gift cards Deferred Revenue – Liability – Statement of cash flows – Deferred tax asset