The Memberships then allow members to access legal services through a network of independent law firms for no fee or for a discounted Rhea Memberships are marketed by a sales force. This sales force is paid solely on commission. To incentive the sales force, Pre-paid Legal Services advances three Hears” worth of commission on each new customer. When Pre-paid pays the three- ear advance, it decreases cash and increases a prepaid commission” asset :deferred expenses). This prepaid commission” asset is then expensed over the subsequent three years as commission expense. Do you think Pre-paid”s accounting for commissions is appropriate?
Why or why not? See excerpts from an article about Apple on the next page. Identify the one sentence that the author of this article would not have written had he been enrolled in this financial statement analysis course. Apple’s Cash Pile Grows On Investors ay Ben Chary, 22 January 2009 DOD Jones News Service, (c) 2009 DOD Jones & Company, Inc. SAN FRANCISCO (DOD Jones)–Apple Inc. (PAPAL)’s cash hoard used to frustrate investors. Now, it soothes them. On Wednesday, Cupertino, Cilia. -based Apple disclosed its cash pile – among the biggest in the technology sector – had grown to $28. 1 billion.
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That dwarfs those of computer-makers Hewlett-Packard Co. (HP) and Dell Inc. (DELL), as well as software maker Microsoft Corp.. (MOST), services giant International Business Machines Inc. (MM) and electronics maker Sony Corp.. (SEEN) Gnat’s more, the way Apple accounts for its hit phone smartness means a slow and steady buildup of cash is likely to accrue over the next two years. In its first fiscal quarter, phone deferred revenue, so called because the company accounts for the revenue over the course of a two-year contract, came to about $1. 5 billion, or about 15% of Apple’s overall revenue.
Apple is positioned to the weather the ongoing recession with greater ease than many of its technology peers. The billions in dollars it holds in bank accounts and easily salable securities means the company has an alternative to fund its operations f credit gets tight. It also has the resources to develop a new product or make an acquisition, something that might become attractive as valuations of potential targets he realization that Apple’s cash is a strength during a recession has quieted critics, No in the past have called on the company to buy back shares or offer a dividend.
Nat was required first though was a change in investor sentiment. Either of those actions could help buoy Apple shares, which have dropped 43% over the past year. ‘A lot of people would like to see something done with all that cash,” said UBS analyst Maynard I-Jam. “But in this environment there’s a bigger focus so nobody’s asking those questions right now. ” Apple’s cash holdings don’t leave it invulnerable to problems caused by the economy. Its latest earnings report highlighted a sharp slowdown in its desktop computer business, which contributes nearly a fifth of overall revenue.
And even though its pod music players posted higher unit sales, each unit sold was less profitable than a year ago. ‘Apple is not immune to the current recession,” noted Needled analyst Charlie Wolf noted to clients Thursday. Still, the company has successfully diversified from being a maker of niche high-end computers Just a few years ago into a rounded consumer electronics company now. That means Apple is more recession resistant because if one segment slows down, the others can pick up the slack.