PART A
Question one
Apple Computer was incorporated in 1977 to design, manufactures as well as marketing mobile communication and media devices (Reuters.com, 2016). Moreover, it also sells different related software, and third party digital applications. Its products are iPhone, Apple television, iPod, Mac, both consumer and professional software applications, iOS and OSX operating systems. The Apple computers Inc. provides a variety of mobile communications, personal computing products, and portable digital players.
Question two
The operating performance of Apple Inc. relies on the general economic conditions. Therefore, for the last four years (1999 to 2002), the demand for the Apple's products has been influenced negatively by the worsening global economic conditions (Apple Annual Report 2002, 2016). Consequently, the continuous uncertainty of the economic status is making it difficult for the company to forecast on its future operating results. Moreover, in case the global and regional economic state fail to improve, the demand for the products of Apple Inc. could be affected continuously as well as the financial status of its suppliers, resellers, and distributors. In 2001, the terrorist attacks interrupted commerce around the globe, and this created several economic and political uncertainties that have led to strong side effects on the world economy. The long run effects of the terrorism of 2001 influenced the economic future of Apple Computers regarding its operating results. This also made its financial condition remained unknown in 2002.
Question three
Digital Hub
The Apple Inc. is committed to providing the best personal computing experience to the educators, students, professionals, businesses and consumers all over the globe via its innovative hardware, software, and internets. Apple Inc. believes that personal computing is in a new era in the sense that it should function for both professionals and consumers just like the digital hub for the progressive devices such as music players, cellular phones, CD and DVD players. Additionally, Apple is a sole incorporation in the personal computer industry that is capable of designing and manufacturing the entire personal computer from the hardware and operating system to sophisticated applications.
Retail
Since the inception of the retail initiative in 2001, Apple has opened over 50 retail stores in the United States mainly to bring new clients to the company and to expand its base through sales to the first time buyers of the computer and those that are switching from other computing platforms. Through the operation of self-stores, Apple is capable of controlling the experience of customers in the retail. Moreover, the stores are designed to promote the presentation as well as marketing of personal computing products.
Education
The company has focused on the educational uses of technology for about two decades. It believes that effective integration of technology in the classes can lead to higher achievement levels among students particularly when applied to support collaboration, access to information, and the presentation of student thought and ideas. Therefore, the commitment of Apple to education covers a range of products and services that are designed to assist learning institutions to maximize the investments in technology.
Creative Professionals
This provides essential markets for both hardware and software products. It is also relevant to the third party developers that offer Macintosh-compatible hardware and software solutions. Hence creativity among customers of the company makes good use of the products for several activities such as digital video and film production, print production, the performance of music, development, and administration.
The company has designed high-end hardware solutions inclusive of servers, desktop, and portable Macintosh systems that can incorporate the power, and features that are desirable to creative professionals. The customers' operating system combines powerful audio technologies and developing tools that can optimize the performance of the application when running powerful and creative solutions offered by the company developers. Additionally, Apple also provides various software solutions to fulfil the demand of its clients.
PART B
Question one
Apple Computers Inc. manages its business mainly on the geographic basis. That is its geographic operating segments include America, Europe, Japan, and Asia Pacific. Therefore, every segment offers similar hardware and software products as well as same services. However, the non-geographic operating segments are the subsidiaries of the company, FileMaker, Inc. and the retail segment of Apple.
Question two
The adjustment of the fair value of Apple Inc. accumulates large amounts of excess cash throughout the year. It invests the funds in marketable securities until they are required. For instance, the recent financial statements of Apple Inc. reveals that there is almost $160 million of unrealized gain on short-term investments. The short term securities of Apple reports the unrealized gain or loss on the income statement, and this affects the net income because the company pay taxes when securities are sold not on the unrealized gain or loss.
Question three
The derivatives that hedge the exposure to variability in expected future cash flows are designated as cash flow hedges. Therefore, the effective part of the gain or loss on the derivative is reported as part of AOCI in the shareholders’ equity (Apple Annual Report 2014, 2016). They are later reclassified into income statement in the same period during which the hedged transaction affects earnings. Apple Inc. uses derivative instruments like foreign currency forward and option contracts to hedge some exposures to fluctuations in foreign currency exchange rates. Therefore, the application of such hedging may not offset any of the adverse financial effects of unfavourable movements in foreign exchange rates over a limited period the hedges are in place.
Question four
Since Apple computers Inc. is a service company, it carries only finished goods inventory. In this firm, inventories are stated at the lower of cost then calculated using the FIFO (First-in, First-out) method. If the cost of inventories is more than their market value, provisions are made currently for the difference between the cost and the market value.
Question five
The company is translating its assets and liabilities of the international non-U.S functional currency subsidiaries into U.S dollar by using the exchange rates in effect at the end of every period. Therefore, all revenues and expenses from the affiliates are translated using the approximate rates during the business period. Thus, gains and losses from such translations are credited to shareholders' equity. Hence, the foreign manufacturing subsidiaries of Apple use the U.S dollar as their functional currency.
Question six
The pension plans are pretty standard in Apple Inc. because one can contribute as much as they can afford based on the choices for investments that are limited to very low costs. Similarly, one has an opportunity to manage its investments when preferable. In Apple Computers, the great pension plan advice are accompanied with the purchase of stock, and this set the employees for success.
Question seven
The purposes of pro forma disclosures in under SFAS 123 given in the annual report of the company through 2002 expects the volatility assumptions that is used by Apple Inc. based on historical volatility rates of the common stocks. However, the company has made no adjustments to the expected volatility based on the present market conditions, trends, or the expected volatility implicit in market traded options on the stocks of the company.
Question eight
The independent auditor’s report of Apple Inc. is unqualified opinion because every financial record has been determined and found to be free of any misrepresentations. Additionally, unqualified opinion shows that the financial statements have been maintained according to the accounting standards such as GAAP (Henderson, 2016).
Question nine
Revenue Recognition
The company recognizes the revenues after receiving all persuasive evidence, there has been an occurrence of delivery, and the sales price is fixed and determinable. Apple defers revenue until products are received by the customer because it legally retains the part of the risk of loss on the sales while in transit. The company makes records on the revenue reductions for the estimated commitments that are related to price protection and customer incentive programs including the rebates of end users and volume-based incentives. Similarly, the revenues for consulting services are recognized by the company upon the performance and acceptance by the customers. The revenues for the extended warranty and support contracts are recognized in a rotatable manner over the contract period. Therefore, the bills to clients are more than the recognized revenues on extended warranty are recognized as deferred revenues until the criteria for their recognition are met.
References
Instrument _Company Name Instrument_Ric Company Profile | Reuters.com. (2016). Reuters. Retrieved 19 August 2016, from http://www.reuters.com/finance/stocks/companyProfile?symbol=AAPL.O
Apple - Annual Report 2002. (2016). Investor.apple.com. Retrieved 19 August 2016, from http://investor.apple.com/secfiling.cfm?filingid=1047469-02-7674&cik=320193
Apple - Annual Report 2014. (2016). Investor.apple.com. Retrieved 19 August 2016, from http://investor.apple.com/secfiling.cfm?filingid=1193125-14-383437
Henderson, K. (2016). Types of Audit Reports. Smallbusiness.chron.com. Retrieved 19 August 2016, from http://smallbusiness.chron.com/4-types-audit-reports-3794.html
