Can anyone please help answering the questions 1 to 8 of case C4-4 (Blue Zone, Inc.) in Antle's Masters Edition Workbook.

C4-4 Blue Zone, Inc. Blue Zone, Inc. (the "Company") is incorporated in the state of Nevada and is in the bits ness of providing technical and creative expertise and software licensing related to Web and interactive television development and related Internet strategies to assist the triti tional mass media corporations in accessing the World Wide Web, through set-top bouct and other interactive devices. The balance shoet, income statement, and cash flow statement found in the Blue Zo Inc. 10K for fiscal year 2000 appear below and on pages 99 and 100 . Excerpts from the fof notes are also given. Exchange Agreement On August 1,1997 , the Company entered into an agreement to exchange services with a British Columbia television station (BCTV). The Company provided Web site development and monthly maintenance services in exchange for daily television advertising. The Company recagnized the revenues and advertising expenses from the barter transaction at the fair value of the advertising received. Blue Zone recorded no revenue under barter exchange agreements for the year ended December 31, 2000, compared to $505,000 for the year ended December 31, 1999. This decrease was altributable to the completion of our three-year Web site evolution project contract with BCTV on December 31.1999, as discussed above As a result, revenue for which Blue Zone received cash consideration increased 209\%, from $378,000 in 1999 to $1,169,000 in 2000. Erchange advertising dropped from $505,000 in 1999 to nil in 2000 as a result of the termination of the BCTV contrect and the change in accounting principles applicable to barter transactions. Research and development and advertising costs are expensed as incurred. Advertising costs charged to seiling and marketing expenses in 2000 total $4,993 (1999: $513,252;1998:5505,698 ). Advertising costs in 1999 and 1998 include the exchange advertising presented separately in the statement of operations Stock Options During the year ended December 31,2000, the Company recorded non-cash compensation expense of $270,428(1999:$16,094;1998: nil) relating to the issuance of 2,083,500 (1999: 1,888,500; 1998: nil) common stock purchase options to certain employees, officers, and directors of the Company, representing the implicit benefit derived from the exercise price being less than fair morket value. During the year ended December 31,2000 , the Compary recorded non-cash compensation expense of $98,745 (1999: $280,917;1998 : nil) felating to the issuance of 6,000 (1999: 106,500; 1998: nil) common stock purchase options to certain contractors of the Company, representing the fair value benefit of the options. IHON5, EXEACISE, POBLEAS, AUD CASES TO ACCOMPANY HNANCIAL ACCDUHTHO Dlue Zone, Inc. Product and Service The Company generates product and service revenue through the following sources: in teractive broadcasting development and maintenance, strategic consulting services for broadcasting and media companies, and software licensing from Blue Zone's family of MediaBZ software applications. Consulting service revenues are recognized upon delivery of the service. Interactive broadeasting maintenance is recognized over the term of the contracts, typically month to month. Software licensing revenue is recognized over the term of the license. Blue Zone recognized license fee revenue of $21,000 during the year, and $60,000 is recorded as deferred revenue at December 31,2000 , tepresenting the unrecognized portion of the annual license fee. For loas-tenn developinent projects sach as the ACTV contract, revenoe is recogaised on a perevatage crimpletion basis, based upon achievement of specifinally identifiable milestones. A total of 5673,000 wat earned durieg the prat ended Prcenber 31, 2000 relating to long-term Web sile development for BCTV. levenac that has been prepaid or invoiced but does not yet qualify fot recognition under the Compeny' policies is refiectad as deferied revenue. There ural no deferred revente recorded at December 31, 2000, ather than the deferred licmuing fee mentioned above. At December \$1, 1998 there was uncarsed terenue of 5180,000 telating atalnly to pwyents received on the BCTV contract is advance of the Corepary atisfying recogatfion criteria. A sigaificant propottion of Bfue Zane's reported rerence for the the yeun ended December 31. 1999 was earned from a thiec-year barter extheoge agreement with the Vancouver-based broadeaster, MCTV. The Company resordes cocharof prodact atd service revense and recorded an cquel amouat as exchange advertiniag expense in the atatement of operations. Under the JCTV contract, Plue Zose rehanped product and services for television airtime oa BCFV, rather than recerving eath parantet. The exdhatge fevenue and the advertising expense vere valued at the ftir macket value of the television airtime. The Campany used this airtime to enhance Ise Zo seis name recopanition to assist in marketing products to current and potential clients. In fiscal 2000, the Company adoptod EITT No 9917-Aecounting for Advertieing Barter "Iransactions." EITF 00-17 provides that the Cempuay rcoofnire revenee and ad. vertiaing expenses from burier trankctions at the fair valae enly when it has a hiseorical practice of receiving or paying ceah for timilar trasactions. The Compasy has not recocded burler transictions daring the yoar ended December 31, 2000. Regzired: 1. Why is the 3197,118 of Depreciation added beck to net income in the statement of cash dows in arder to cbtain Net Cash Fruvided by (usted in) Operiting Activities? 2. Verify that atse changes in Acounts Receivable. Work in- Progrest and Ptepuid Axpenter shove us adjustments in the operating section of the cask flest satement agre with the differences between the beginning and ending balancts abowr in the bulance sheets. Is this always true? If yes, what af ne, elve an exangie of athen it might not be orue 3. Explain in detail why the pecpaid expenses are trented the way thef are in the cash Cowitalemeat. 4. Why is Stock Bared Contpersarion added to nes inoorme in arriving at Caih Povided by (ased by\} Operating heiyitieg? Provide a journal entry to recogrize Stock Bised Garmensation Lxpense. 5. In the 2000 fiscal year, how much more or less cash was collected than was recog nized as revenue for those items accounted for in the deferred revenue adcount? Ek plain. What about during fiscal 1999 ? 6. To what do Exchange Product and Service Revenue and Exchange Advertising refee to in the 1998 and 1999 income statements? How was this transaction reported in the cash flow statement in 1998 and 1999? In your opinion, is there a better way to have reported this in the cash flow statement? Apparently such transactions would berequired to be reported differently in 2000. If they engaged in such barter transactions in 2000 , how would they have been reported in the financial statements? 7. Comment in general about the cash flows in each of the categories (operations, in vesting, and financing) over the three-year period 1998 to 2000. 8. Fill in the question marks in the following T-accounts. Provide a journal entry to generate each of the numbers and an explanation of the transaction. C4-4 Blue Zone, Inc. Blue Zone, Inc. (the "Company") is incorporated in the state of Nevada and is in the bits ness of providing technical and creative expertise and software licensing related to Web and interactive television development and related Internet strategies to assist the triti tional mass media corporations in accessing the World Wide Web, through set-top bouct and other interactive devices. The balance shoet, income statement, and cash flow statement found in the Blue Zo Inc. 10K for fiscal year 2000 appear below and on pages 99 and 100 . Excerpts from the fof notes are also given. Exchange Agreement On August 1,1997 , the Company entered into an agreement to exchange services with a British Columbia television station (BCTV). The Company provided Web site development and monthly maintenance services in exchange for daily television advertising. The Company recagnized the revenues and advertising expenses from the barter transaction at the fair value of the advertising received. Blue Zone recorded no revenue under barter exchange agreements for the year ended December 31, 2000, compared to $505,000 for the year ended December 31, 1999. This decrease was altributable to the completion of our three-year Web site evolution project contract with BCTV on December 31.1999, as discussed above As a result, revenue for which Blue Zone received cash consideration increased 209\%, from $378,000 in 1999 to $1,169,000 in 2000. Erchange advertising dropped from $505,000 in 1999 to nil in 2000 as a result of the termination of the BCTV contrect and the change in accounting principles applicable to barter transactions. Research and development and advertising costs are expensed as incurred. Advertising costs charged to seiling and marketing expenses in 2000 total $4,993 (1999: $513,252;1998:5505,698 ). Advertising costs in 1999 and 1998 include the exchange advertising presented separately in the statement of operations Stock Options During the year ended December 31,2000, the Company recorded non-cash compensation expense of $270,428(1999:$16,094;1998: nil) relating to the issuance of 2,083,500 (1999: 1,888,500; 1998: nil) common stock purchase options to certain employees, officers, and directors of the Company, representing the implicit benefit derived from the exercise price being less than fair morket value. During the year ended December 31,2000 , the Compary recorded non-cash compensation expense of $98,745 (1999: $280,917;1998 : nil) felating to the issuance of 6,000 (1999: 106,500; 1998: nil) common stock purchase options to certain contractors of the Company, representing the fair value benefit of the options. IHON5, EXEACISE, POBLEAS, AUD CASES TO ACCOMPANY HNANCIAL ACCDUHTHO Dlue Zone, Inc. Product and Service The Company generates product and service revenue through the following sources: in teractive broadcasting development and maintenance, strategic consulting services for broadcasting and media companies, and software licensing from Blue Zone's family of MediaBZ software applications. Consulting service revenues are recognized upon delivery of the service. Interactive broadeasting maintenance is recognized over the term of the contracts, typically month to month. Software licensing revenue is recognized over the term of the license. Blue Zone recognized license fee revenue of $21,000 during the year, and $60,000 is recorded as deferred revenue at December 31,2000 , tepresenting the unrecognized portion of the annual license fee. For loas-tenn developinent projects sach as the ACTV contract, revenoe is recogaised on a perevatage crimpletion basis, based upon achievement of specifinally identifiable milestones. A total of 5673,000 wat earned durieg the prat ended Prcenber 31, 2000 relating to long-term Web sile development for BCTV. levenac that has been prepaid or invoiced but does not yet qualify fot recognition under the Compeny' policies is refiectad as deferied revenue. There ural no deferred revente recorded at December 31, 2000, ather than the deferred licmuing fee mentioned above. At December \$1, 1998 there was uncarsed terenue of 5180,000 telating atalnly to pwyents received on the BCTV contract is advance of the Corepary atisfying recogatfion criteria. A sigaificant propottion of Bfue Zane's reported rerence for the the yeun ended December 31. 1999 was earned from a thiec-year barter extheoge agreement with the Vancouver-based broadeaster, MCTV. The Company resordes cocharof prodact atd service revense and recorded an cquel amouat as exchange advertiniag expense in the atatement of operations. Under the JCTV contract, Plue Zose rehanped product and services for television airtime oa BCFV, rather than recerving eath parantet. The exdhatge fevenue and the advertising expense vere valued at the ftir macket value of the television airtime. The Campany used this airtime to enhance Ise Zo seis name recopanition to assist in marketing products to current and potential clients. In fiscal 2000, the Company adoptod EITT No 9917-Aecounting for Advertieing Barter "Iransactions." EITF 00-17 provides that the Cempuay rcoofnire revenee and ad. vertiaing expenses from burier trankctions at the fair valae enly when it has a hiseorical practice of receiving or paying ceah for timilar trasactions. The Compasy has not recocded burler transictions daring the yoar ended December 31, 2000. Regzired: 1. Why is the 3197,118 of Depreciation added beck to net income in the statement of cash dows in arder to cbtain Net Cash Fruvided by (usted in) Operiting Activities? 2. Verify that atse changes in Acounts Receivable. Work in- Progrest and Ptepuid Axpenter shove us adjustments in the operating section of the cask flest satement agre with the differences between the beginning and ending balancts abowr in the bulance sheets. Is this always true? If yes, what af ne, elve an exangie of athen it might not be orue 3. Explain in detail why the pecpaid expenses are trented the way thef are in the cash Cowitalemeat. 4. Why is Stock Bared Contpersarion added to nes inoorme in arriving at Caih Povided by (ased by\} Operating heiyitieg? Provide a journal entry to recogrize Stock Bised Garmensation Lxpense. 5. In the 2000 fiscal year, how much more or less cash was collected than was recog nized as revenue for those items accounted for in the deferred revenue adcount? Ek plain. What about during fiscal 1999 ? 6. To what do Exchange Product and Service Revenue and Exchange Advertising refee to in the 1998 and 1999 income statements? How was this transaction reported in the cash flow statement in 1998 and 1999? In your opinion, is there a better way to have reported this in the cash flow statement? Apparently such transactions would berequired to be reported differently in 2000. If they engaged in such barter transactions in 2000 , how would they have been reported in the financial statements? 7. Comment in general about the cash flows in each of the categories (operations, in vesting, and financing) over the three-year period 1998 to 2000. 8. Fill in the question marks in the following T-accounts. Provide a journal entry to generate each of the numbers and an explanation of the transaction