The following information was reported in a recent balance sheet issued by Microsoft Corporation:
1. The book value of property and equipment is listed at $2,326 billion (net of depreciation). Related notes to the financial statements reveal that accumulated depreciation on property and equipment totals $4,029 billion.
2. Accrued compensation of $1,339 billion is listed as a liability.
3. Short-term unearned revenue is reported at $6.514 billion, whereas long-term unearned revenue is reported at $1,663 billion. The short-term figure will be converted to revenue within a year. The long-term figure will be converted to revenue over several years. Related notes to the financial statements reveal that the company engages in multiyear leasing of its software products.
a. Determine the original historical cost of the property and equipment reported in Microsoft Corporation’s balance sheet.
b. Four types of adjusting entries are illustrated in Exhibit 4–1 (page 144). Explain which type of adjusting entry resulted in the company’s accrued compensation figure.
c. Explain why Microsoft Corporation reports unearned revenue in its balance sheet. Why might the company report short-term unearned revenue separately from long-term unearned revenue?
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