Question

Refer to Apple’s financial statements in Appendix A to answer the following.

1. Identify and write out the revenue recognition principle as explained in the chapter.

2. Review Apple’s footnotes (in Appendix A and/or from its 10-K on its website) to discover how it

applies the revenue recognition principle and when it recognizes revenue. Report what you

discover.

3. What is Apple’s profit margin for fiscal years ended September 26, 2015, and September 27, 2014.

4. For the fiscal year ended September 26, 2015, what amount is credited to Income Summary to summarize

its revenues earned?

5. For the fiscal year ended September 26, 2015, what amount is debited to Income Summary to summarize

its expenses incurred?

6. For the fiscal year ended September 26, 2015, what is the balance of its Income Summary account

before it is closed?

Fast Forward

7. Access Apple’s annual report (10-K) for fiscal years ending after September 26, 2015, at its website

(Apple.com) or the SEC’s EDGAR database (SEC.gov). Assess and compare the September 26,

2015, fiscal year profit margin to any subsequent year’s profit margin that you compute.

Short answer

The Profit margin is 22.84% and 22.61%.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of revenue account

Revenue account have the credit balance as the normal balance and record all the revenues of the company.

Profit margin of Apple company

For the year ended September 26, 2015

$$\begin{gathered} \mathbf{Net}\mathbf{}\mathbf{Profit}\mathbf{}\mathbf{Margin}\mathbf{=}\frac{\mathbf{Net}\mathbf{Income}}{\mathbf{Net}\mathbf{Sales}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$53,394}{\$233,715}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{22}\mathbf{.}\mathbf{84}\mathbf{\%} \end{gathered}$$

For the year ended September 27, 2014

$$\begin{gathered} \mathbf{\text{NetProfitMargin=}}\frac{\mathbf{Net}\mathrm{\hspace{0.17em}}\mathbf{Income}}{\mathbf{Net}\mathrm{\hspace{0.17em}}\mathbf{Sales}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$39,510}{\$182,795}\mathbf{\times }\mathbf{100} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\hspace{0.17em}}\mathbf{22}\mathbf{.}\mathbf{61}\mathbf{\%} \end{gathered}$$