Salesforce.com, inc., is a leading provider of enterprise software, delivered through the cloud, with a focus on customer relationship management, or CRM. The Company helps its customers to connect with their customers through cloud, mobile, social, blockchain, voice, advanced analytics, and artificial intelligence (“AI”) technologies. Presented below are the items adapted from its recent income statement for the year ended January 31 (in millions, except per share amounts). Net earnings per share was $0.15, and the weighted-average shares used in the computation were 829 million.

Required:
1. Recognizing that Salesforce has two sources of operating revenues, prepare a classified (multiple-step) income statement for Salesforce following the format and using the subtotals presented in Exhibit 5.5.

Data From Exhibit 5.5

2. Which source of operating revenues produces the higher gross profit?

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Cost of subscription and support revenues $3,198 Cost of professional services and other revenues General and administrative expense Income tax expense Subscription and support revenues 1,037 1,704 580 16,043 Professional services and other revenues Other income Marketing and sales expense Research and development expense $1,055 243 7,930 2,766