Question: The dot-com business has raised many issues about accounting practices, some of which are of great concern to both the SEC and the FASB. Important

The dot-com business has raised many issues about accounting practices, some of which are of great concern to both the SEC and the FASB. Important ones relate to the valuation and classification of revenue transactions. Many dot-com companies seek to report as much revenue as possible because revenue growth is seen as a key performance measure for these companies. Amazon.com is a good example. Consider the following situations:

a. An Amazon.com customer orders and pays $28 for a video game on the Internet. Amazon sends an email to the company that makes the product, which sends the video game to the customer. Amazon collects $28 from the customer and pays $24 to the other company. Amazon never owns the video game.

b. Amazon agrees to place a banner advertisement on its website for another dot-com company. Instead of paying cash for the advertisement, the other company agrees to let Amazon advertise on its website.

c. Assume the same facts as in situation be except that Amazon agrees to accept the other company’s common stock in this barter transaction. Over the next six months, the price of that stock declines.

Divide the class into three groups. Assign each group one of the above situations. Each group should discuss the valuation and classification issues that arise in the assigned situation, including how Amazon should account for each transaction.

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a The transaction is classified as cash received and stockholders equity revenue The main issue is how much revenue should be recorded Amazon wants to ... View full answer

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