(Learning Objective 1, 2: Accrual basis of accounting, applying accounting principles) During 20X6, Dish Network, Inc., which designs network servers, earned revenues of $700 million. Expenses totaled $540 million. Dish collected all but $20 million of the revenues and paid $550 million on its expenses. Dish’s top managers are evaluating 20X6, and they ask you the following questions:
a. Under accrual accounting, what amount of revenue should Dish Network report for 20X6? Is the revenue the $700 million earned or is it the amount of cash actually collected? How does the revenue principle help to answer these questions?
b. Under accrual accounting, what amount of total expense should Dish Network report for 20X6—$540 million or $550 million? Which accounting principle helps to answer this question?
c. Which financial statement reports revenues and expenses? Which statement reports cash receipts and cash payments?