a. Xerox reports several sources of income. How should revenue be recognized for each of these business activities? Explain. b. b. Compute the relative size of Sales revenue (total) and of revenue from Service, outsourcing and rentals. Hint: Scale each type of revenue by Total revenue. Which type of revenue grew more in 2010? c. Xerox reports research, development and engineering expenses (R&D) each year. Compare R&D spending over the three years. Hint: Scale R&D by Total revenue each year. What might explain the change in 2010? d. Xerox reports restructuring costs each year. (1) Describe the three typical categories of restructuring costs and the accounting for each. (2) How do you recommend treating these costs for analysis purposes? (3) Should regular recurring restructuring costs be treated differently then isolated occurrences of such costs for analysis purposes/ (4) What does the $(8) expense in 2009 imply about one or more previous years accruals? e. Xerox reports $3899 million in expenses in 2010 labeled as Other expenses, net. How can a company use such an account to potentially obscure its actual financial performance? Year Ended December 31 (in millions) Year 1--2010 Revenue Equipment Sales--3857 Supplies, paper and other--3377 Sales--7234 Service, outsourcing and rentals--13,739 Finance income--660 Total revenues--21633 Costs and Expenses Cost of sales--4741 Cost of service, outsourcing and rentals--9195 Equipment financing interest--246 Research, development and engineering expenses--781 Selling, administrative and general expenses--4594 Restructuring and asset impairment charges--483 Acquisition-related costs--77 Amortization of intangible assets--312 Other expenses net--389 Total Costs and Expenses--20,818 Income (Loss) before Income Taxes and Equity Income--815 Income tax expense (benefit)--256 Equity in net income of unconsolidated affiliates--78 Net income--637 Less: Net income Attibutable to noncontrolling interests--31 Net income Attributable to Xerox--606 Year 2--2009 Revenue Equipment Sales--3550 Supplies, paper and other--3096 Sales--6646 Service, outsourcing and rentals--7820 Finance income--713 Total revenues--15179 Costs and Expenses Cost of sales--4395 Cost of service, outsourcing and rentals--4488 Equipment financing interest--271 Research, development and engineering expenses--840 Selling, administrative and general expenses--4149 Restructuring and asset impairment charges--(8) Acquisition-related costs--72 Amortization of intangible assets--60 Other expenses net--285 Total Costs and Expenses--14552 Income (Loss) before Income Taxes and Equity Income--627 Income tax expense (benefit)--152 Equity in net income of unconsolidated affiliates--41 Net income--516 Less: Net income Attibutable to noncontrolling interests--31 Net income Attributable to Xerox--485 Year 2--2008 Revenue Equipment Sales--4679 Supplies, paper and other--3646 Sales--8325 Service, outsourcing and rentals--8485 Finance income--798 Total revenues--.

1. a. Xerox reports several sources of income. How should revenue be recognized for each of
these business activities? Explain.
b. b. Compute the relative size of Sales revenue (total) and of revenue from Service,
outsourcing and rentals. Hint: Scale each type of revenue by Total revenue. Which type of
revenue grew more in 2010?
c. Xerox reports research, development and engineering expenses (R&D) each year.
Compare R&D spending over the three years. Hint: Scale R&D by Total revenue each
year. What might explain the change in 2010?
d. Xerox reports restructuring costs each year. (1) Describe the three typical categories of
restructuring costs and the accounting for each. (2) How do you recommend treating these costs
for analysis purposes? (3) Should regular recurring restructuring costs be treated differently then
isolated occurrences of such costs for analysis purposes/ (4) What does the $(8) expense in 2009
imply about one or more previous years accruals?
e. Xerox reports $3899 million in expenses in 2010 labeled as Other expenses, net. How can
a company use such an account to potentially obscure its actual financial performance?
Year Ended December 31 (in millions)
Year 1--2010
Revenue
Equipment Sales--3857
Supplies, paper and other--3377
Sales--7234
Service, outsourcing and rentals--13,739
Finance income--660
Total revenues--21633
Costs and Expenses
Cost of sales--4741
Cost of service, outsourcing and rentals--9195
Equipment financing interest--246
Research, development and engineering expenses--781
Selling, administrative and general expenses--4594
Restructuring and asset impairment charges--483
Acquisition-related costs--77
Amortization of intangible assets--312
Other expenses net--389
Total Costs and Expenses--20,818

2. Income (Loss) before Income Taxes and Equity Income--815
Income tax expense (benefit)--256
Equity in net income of unconsolidated affiliates--78
Net income--637
Less: Net income Attibutable to noncontrolling interests--31
Net income Attributable to Xerox--606
Year 2--2009
Revenue
Equipment Sales--3550
Supplies, paper and other--3096
Sales--6646
Service, outsourcing and rentals--7820
Finance income--713
Total revenues--15179
Costs and Expenses
Cost of sales--4395
Cost of service, outsourcing and rentals--4488
Equipment financing interest--271
Research, development and engineering expenses--840
Selling, administrative and general expenses--4149
Restructuring and asset impairment charges--(8)
Acquisition-related costs--72
Amortization of intangible assets--60
Other expenses net--285
Total Costs and Expenses--14552
Income (Loss) before Income Taxes and Equity Income--627
Income tax expense (benefit)--152
Equity in net income of unconsolidated affiliates--41
Net income--516
Less: Net income Attibutable to noncontrolling interests--31
Net income Attributable to Xerox--485
Year 2--2008
Revenue
Equipment Sales--4679
Supplies, paper and other--3646
Sales--8325

3. Service, outsourcing and rentals--8485
Finance income--798
Total revenues--17608
Costs and Expenses
Cost of sales--5519
Cost of service, outsourcing and rentals--4929
Equipment financing interest--305
Research, development and engineering expenses--884
Selling, administrative and general expenses--4534
Restructuring and asset impairment charges--429
Acquisition-related costs--0
Amortization of intangible assets--54
Other expenses net--1033
Total Costs and Expenses--17687
Income (Loss) before Income Taxes and Equity Income--(79)
Income tax expense (benefit)--(231)
Equity in net income of unconsolidated affiliates--113
Net income--265
Less: Net income Attibutable to noncontrolling interests--35
Net income Attributable to Xerox--230
Solution
A company can recognize revenue from a transaction when the buyer of the company's good or
service agrees to a purchase, and the amount that the customer is going to pay is
determined.a. Xerox reports several sources of income. How should revenue be recognized for
each of these business activities? Explain.1) for Equipment sale, Supplies : revenue can be
recognised when the product is delivered.2) Service, outsourcing and rentals - when the service
are performed3) Finance Income = Finance income suchas interest can be accrued and
recognised at the end of the compounding period.b.Compute the relative size of Sales revenue
(total) and of revenue from Service, outsourcing and rentals.Sales revenue = 7234/21633 =
.33revenue from Service, outsourcing and rentals = 13739/21633 = .64