1990 REVENUES

Licenses Services Total Revenues ### ### ###

1989

1988

### ### ### $76,678 ### ###

OPERATING EXPENSES
Sales and marketing Cost of Services Research and Development General and Adminstrative Total Operating Expenses OPERATING INCOME OTHER INCOME (EXPENSE): Interest Income Interest Expense Other Income (Expenses) Total Other Income (Expense) INCOME BEFORE PROVISION FOR INCOME TAXES PROVISION FOR INCOME TAXES ### ### ### ### ### $51,241 $88,291 $52,570 $25,708 $67,258 $34,344 $17,121 ### ### ### ### ### $63,895 $3,772 ($12,096 ($8,811 ($17,135 $2,724 $2,472 ($4,318 ($1,540 ($1,121 $152 ($2,715 $1,084

### ### $64,979 $55,250 $38,479 $22,093 ### $81,766 $42,886

NET INCOME
EPS NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING

Question 1:

Oracle is one of the more aggressive reporters in the industry. Oracle recognizes revenue is signed instead of when the shipment has taken place. Also, the fact that the days receiv higher when comparing to competitors indicates that a significant amount of accounts rece may be uncollectible and need to be written off instead of counted as assets on the books. Question 5:

A change to a more conservative revenue recognition policy may limit the firm's lending co management compensation. Changing to a more a more conservative policy may have a ne net income and decrease the stock price, which may affect creditor's decisions to lend capit Also, performance based pay, such as bonuses, may also be affect negatively. Question 6:

I would expect the stock price to decrease and investors to iniitially have some concerns. believe that Oracle could counteract some of the potential damage by including a detaile discllosure on accounting changes and other useful information future strategies to increa and the business strategy in general. Question 7:

I believe that Oracle should in deed make the accounting change. Despit e the fact the au financial statements to fairly represent the Company, I believe recording revenue before shipped is unreasonable and can lead to earnings management. Also, the fact that the a receivable turnover is exceptionally higher than other's in the industy raises alarm tha revenue being recorded is not even collectible in many cases.

e recognizes revenue when the contract that the days receivable is so much ount of accounts receivable accounts assets on the books.

the firm's lending contracts and policy may have a negative impact on ecisions to lend capital to the firm. atively.

ave some concerns. However, I by including a detailed voluntary e strategies to increase revenues

espit e the fact the auditors found the ding revenue before product is o, the fact that the accounts sty raises alarm that perhaps the

MSAF Final Exam

Question 2 Percentage of revenue attributed to licenses 71.06% Receivables ### Customer Advances and Unearned Revenue $42,121.00 Earned Revenue ### Amount of Receivables Attriibuted to Licenses ### Receivables Turnover = Days Receivable Receivable Turnover Days Receivable 2.28 160 3.04 120

=(302,687-X)/(689,898-X)=120/365 =$74000.30/.33=2X =$112.58=X ### 1990 sales is revenue was recognized @ delivery ### Question 3 Licenses Services Total Revenues Aggressive ConservativeRatio $689,898 ### $280,946 $280,946 $970,844 ### Variance 16.5% 0.0% 11.7%

OPERATING EXPENSES
Sales and marketing Cost of Services Research and Development General and Adminstrative Total Operating Expenses OPERATING INCOME OTHER INCOME (EXPENSE): Total Other Income (Expense) INCOME BEFORE PROVISION FOR INCOME TAXES PROVISION FOR INCOME TAXES NET INCOME Question 4: Licenses $465,074 $160,426 $88,291 $67,258 $781,049 $189,795 ($17,135 $172,660 $55,250 $117,410 ### $160,426 $88,291 $67,258 ### ### ($17,135 ### $36,301.17 $77,142 34.3% 34.3% 34.3% 48% 17% 9% 7% 80% 11.7%

7.0% 31.2%

32%

At time if contract At time of delivery 1989 1988 1989 1988 417825 205435 350973 172565.4

Services Total Revenues

165848 583673

76678 282113

165848 516821

76678 249243.4

OPERATING EXPENSES
Sales and marketing Cost of Services Research and Development General and Adminstrative Total Operating Expenses OPERATING INCOME OTHER INCOME (EXPENSE): Total Other Income (Expense) INCOME BEFORE PROVISION FOR INCOME TAXES PROVISION FOR INCOME TAXES NET INCOME Write off Required 272812 100987 52570 34344 460713 122960 -2715 120245 38479 81766 46620.99 124148 ### 119636.83 51241 100987 51241 25708 52570 25708 17121 34344 17121 218218 ### 213706.83 63895 80845.92 35536.57 1084 -2715 1084 36620.57 11718.58 24901.99

64979 78130.92 22093 25001.89 42886 53129.03