Reference no: EM132493503
Following are the 2019 income statements for Katy Com and Mike Com, competitors in the computer industry. Use these financial statements to answer the required.
Katy Com
Income Statements (in millions)
Sept. 24, 2019 Sept. 26, 2018 Sept. 27, 2017
Net sales $215,639 $233,715 $182,795
Cost of sales 131,376 140,089 112,258
Gross margin 84,263 93,626 70,537
Operating expenses Research and development 10,045 8,067 6,041
Selling, general and administrative 14,194 14,329 11,993
Total operating expenses 24,239 22,396 18,034
Operating income 60,024 71,230 52,503
Other income/(expense), net 1,348 1,285 980
Income before provision for income taxes 61,372 72,515 53,483
Provision for income taxes 15,685 19,121 13,973
Net income $ 45,687 $53,394 $39,510
Mike Com Income Statements (in millions)
June 30, 2019 June 30, 2018 June 30, 2017
Revenue Product $61,502 $75,956 $72,948
Service and other 23,818 17,624 13,885
Total revenue 85,320 93,580 86,833
Cost of revenue Product 17,880 21,410 16,681
Service and other 14,900 11,628 10,397
Total cost of revenue 32,780 33,038 27,078
Gross margin 52,540 60,542 59,755
Research and development 11,988 12,046 11,381
Sales and marketing 14,697 15,713 15,811
General and administrative 4,563 4,611 4,677
Impairment, integration, and restructuring 1,110 10,011 127
Operating income 20,182 18,161 27,759
Other income (expense), net (431) 346 61
Income before income taxes 19,751 18,507 27,820
Provision for income taxes 2,953 6,314 5,746
Net income $16,798 $12,193 $22,074
Required:
Question 1: How do the two companies account for R&D expenditures?
Question 2: Katy's and Mike's R&D expense includes many different types of costs. List three specific costs included in R&D expense on the income statement.
Question 3: Compare R&D expenses of the two companies. What trend do you notice in the R&D expenses of each company over time? (Hint: determine the common-size R&D amounts. Consider both direct R&D expenses as well as acquired R&D.)