Read Research Case 21-4 on locating and extracting relevant information for a financial reporting issue of Microsoft Corporation. (To access file, click on Discussion 6.1 link, then select Research Case 21-4 to download file)
- Locate the financial statements of Microsoft Corporation on the internet. Search the disclosure notes for information about how Microsoft accounts for its unearned revenues. How is the undelivered portion of Microsoft’s sales of Windows XP Professional recorded initially?
- Why does the statement of cash flows include “unearned revenue” as an addition to net income in the operations section? Why is “recognition of unearned revenue” included as a deduction from the net income? Why do you think Microsoft reported these two items separately rather than just adjusting net income for the change in the unearned revenue account balance?
- Why is stock-based compensation added to net income?