Boeing 2010 Annual Report Download - page 69

Program Accounting Our Commercial Airplanes segment predominantly uses program accounting to
account for cost of sales related to its programs. Program accounting is applicable to products
manufactured for delivery under production-type contracts where profitability is realized over multiple
contracts and years. Under program accounting, inventoriable production costs, program tooling costs,
and routine warranty costs are accumulated and charged to cost of sales by program instead of by
individual units or contracts. A program consists of the estimated number of units (accounting quantity)
of a product to be produced in a continuing, long-term production effort for delivery under existing and
anticipated contracts. The determination of the accounting quantity is limited by the ability to make
reasonably dependable estimates of the revenue and cost of existing and anticipated contracts. To
establish the relationship of sales to cost of sales, program accounting requires estimates of (a) the
number of units to be produced and sold in a program, (b) the period over which the units can
reasonably be expected to be produced, and (c) the units’ expected sales prices, production costs,
program tooling, and routine warranty costs for the total program.
We recognize sales for commercial airplane deliveries as each unit is completed and accepted by the
customer. Sales recognized represent the price negotiated with the customer, adjusted by an
escalation formula as specified in the customer agreement. The amount reported as cost of sales is
determined by applying the estimated cost of sales percentage for the total remaining program to the
amount of sales recognized for airplanes delivered and accepted by the customer.
Concession Sharing Arrangements We account for sales concessions to our customers in
consideration of their purchase of products and services as a reduction to revenue when the related
products and services are delivered. The sales concessions incurred may be partially reimbursed by
certain suppliers in accordance with concession sharing arrangements. We record these
reimbursements, which are presumed to represent reductions in the price of the vendor’s products or
services, as a reduction in Cost of products.
Spare Parts Revenue We recognize sales of spare parts upon delivery and the amount reported as
cost of sales is recorded at average cost.
Service Revenue Service revenue is recognized when the service is performed with the exception of
U.S. government service agreements, which are accounted for using contract accounting. Service
activities primarily include: support agreements associated with military aircraft and helicopter
contracts, ongoing maintenance of International Space Station and Space Shuttle, commercial Delta
launches and technical and flight operation services for commercial aircraft. Service revenue and
associated cost of sales from pay-in-advance subscription fees are deferred and recognized as
services are rendered.
Financial Services Revenue We record financial services revenue associated with sales-type finance
leases, operating leases, and notes receivable.
Lease and financing revenue arrangements are included in Sales of services on the Consolidated
Statements of Operations. For sales-type finance leases, we record an asset at lease inception. This
asset is recorded at the aggregate future minimum lease payments, estimated residual value of the
leased equipment, and deferred incremental direct costs less unearned income. Income is recognized
over the life of the lease to approximate a level rate of return on the net investment. Residual values,
which are reviewed periodically, represent the estimated amount we expect to receive at lease
termination from the disposition of the leased equipment. Actual residual values realized could differ
from these estimates. Declines in estimated residual value that are deemed other-than-temporary are
recognized as Cost of services in the period in which the declines occur.
57