Question

1. Internet companies that simply act as agent or broker for the transfer of goods must record revenue based on:

a. the cost of the product sold.

b. the fees it charges sellers.

c. the sales price of the product.

d. the gross profit of the product sold.

2. Which of the following statements is not true regarding the cash flow statement?

a. The cash flow statement provides information about changes in all the balance sheet accounts.

b. The change in cash is classified into cash flow from three categories: operating activities, investing activities and financing activities.

c. The cash flow statement generally shows that cash flows and accrual earnings are substantially the same.

d. The cash flow statement explains the causes for year-to-year changes in cash and cash equivalents.

Answer 1

Solution 1:

Internet companies that simply act as agent or broker for the transfer of goods must record revenue based on the fees it charges sellers. They having nothing to do with cost of product sold, sale price of product and gross profit of the product sold for the purpose of revenue recognition as they just work in the capacity of agent only.

Hence option B is the right choice.

Solution 2:

The incorrect statement about cash flow is "The cash flow statement generally shows that cash flows and accrual earnings are substantially the same." Generally we found big gaps in cash flows and accrual earnings. Cash flow statement includes cash flow from operating activities, investing activites and financing activities while accural earnings include income from operation that also include non cash expense and revenue recognized but not received.

Hence this statement is incorrect.

Therefore option C is ther right choice.