On December 16, 2010, Medianet Group's CFO and Company's Board of Directors concluded that the previously issued financial statements contained in the Company's Quarterly Reports on Form 10-Q for each of the three quarters during the year ended September 30, 2010, should not be relied upon because of the following errors that require a restatement of such financial statements: Intercompany eliminations. Certain intercompany eliminations were not made during each of the quarters during the year ended September 30, 2010, and for the fiscal year ended September 30, 2009. In this connection, Medianet determined that during the periods referred to above, insufficient personnel resources were available to perform review and monitoring controls within the accounting function.
Enrollment fees. The Company determined that revenue from the sale of its eBiz kits was erroneously recorded for each of the quarters during the year ended September 30, 2010, and for the fiscal year ended September 30, 2009. The Company's nonrefundable eBiz kits fee revenue was previously recognized when collected. Based on a review of Staff Accounting Bulletin ("SAB") 104, the Company revised its revenue recognition of nonrefundable eBiz kits to recognize them on a straight-line basis over the term of the renewal period (12 months).

Income Statement
(as reported)
For the Year Ended 12/30/2009
Revenues............. 16,974,449
Direct cost of revenues........ 11,804,157
Gross profit........... 5,170,292
Selling, general and administrative... 5,905,788
Income (loss) from operations .... (735,496)
Interest income (expense)€”net .... (3,245)
Income (loss) from continuing
operations before income taxes..... (738,741)
Income taxes€”benefit (expense)..... (287,838)
Income (loss) from continuing
operations ........... (1,026,579)
(Loss) from discontinued segment .... (1,980,285)
Gain from sale of subsidiary ..... 74,990
Net Income (loss)........... (2,931,874)

Required:
A. Intercompany sales of inventory of $862,677 were not eliminated from the consolidated income statement. What impact did this have on net income and on revenues? Why are intercompany sales eliminated during consolidation?
B. The error for the enrollment fees meant that unearned revenues were understated by $2,934,794. What impact did this error have on revenue? Does this error have an impact on cash flows? What impact did this error have on the Company's working capital, current ratio, and total liabilities-to-equityratio?

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Liabilities Current Liabilities: Assets Current Assels: Cash and cash equivalents Restricted cash Accounts receivable Inventories Prepaid customer acquisition costs Prepaid expenses Deposits 121,461 585,715 644,292 209,025 1,876,605 287,838 18,348 2,626,835 191,355 6,561,474 2.499,237 ccounts payable Accrued and other liabilities A 722,230 72,998 Accrued incentive 401,141 alty points payable Commissions payable 127,209 Ice taxes payable 94,070 Customer deposits 3,916,885 Deferred revenue Total Current Assets Note payable-related party Total Current Liabilities Property and equipment, net Other Assets 94,139Common stock 32,222 Additional paid-in capital 27,304 (768,528) (14,176) Total Assets 4,043,246 Other comprehensive (loss) Retained earnings (deficit) (1,762,828) Total Stockholders Equity (2,518,228) Total Liabilities and Stockholders' Equity 4,043,246