Apple Accounting

Question 1

Under the subscription model Apple recorded estimated revenues of $5,962,500 for the 30 hour period following the launch of the iPhone. This amount is derived from the following assumptions: Apple received an average of $530/iPhone; 270,000 iPhones were sold during the 30-hour timeframe; and, the subscription period is 24 months. Mathematically the equation reads ($530 * 270,000 / 24).

If all revenue had been recorded at the point of sale, Apple could have recognized revenue of $143.1M or ($530 * 270K).

Question 2

Given the subscription model, Apple's sales of 270,000 iPhones at the end of the third quarter will generate revenues of ~$17.9M. The revenues generated from the sales of those 270K iPhones will generate three months worth of their respective subscriptions during the three months of the fourth quarter. The equation therefore is (270K * $530 (average unit price) * 3 (# of months) / 24 (# of months, or duration, of subscription)).

For the fourth quarter, Apple management estimates sales of an additional 730,000 devices. For our purposes, we assumed that the sales of these devices would be linear and accounted for at the close of each month. This equates to (730K units / 3) / month sold, or ~243K. Per the subscription model, each device sold will generate monthly revenues of $425 (cost of the unit) / 24 months (duration of subscription). The timing in which the devices were sold therefore impacts the number of monthly revenues generated. Devices sold in month one will generate revenues of ($425 / 24 * 3 (the number of months in the quarter)). Similarly, devices sold in month two will generate revenues of ($425 / 24 * 2), and devices sold in September will only realize one month of revenue, or ($425 / 24). In summary, the monthly units sold (730K / 3) multiplied by the monthly revenue ($425 / 24) can be accounted for 6 times during the quarter. The final equation is (730K / 3 * $425 / 24 * 6) = ~ $25.85M for the phones sold in Q4. The combination of third and fourth quarter revenues should be ~$43.74M.

Question 3

Compared