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Following are the 2016 income statements for Apple Inc. and Microsoft Corporation, competitors in the computer industry. Use these financial statements to answer the required.

APPLE INC. Income Statements
(in millions)	Sep. 24, 2016	Sep. 26, 2015	Sep. 27, 2014
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

MICROSOFT CORPORATION Income Statements
(in millions)	Jun. 30, 2016		Jun. 30, 2015		Jun. 30, 2014
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

Problem 5 continued:

Required:

1. How do Apple Inc. and Microsoft Corporation account for R&D expenditures?
2. Apple Inc.s and Microsoft Corporations R&D expense includes many different types of costs. List three specific costs included in R&D expense on the income statement.
3. Compare R&D expenses of the two companies. (Hint: determine the common-size R&D amounts. Consider both direct R&D expenses as well as acquired R&D.)
4. What trend do you notice in the R&D expenses of each company over time?

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