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(3)ÌýÌýSummary of Significant Accounting Policies

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Cash and Cash Equivalents

Cash equivalents consist of investments which are readily convertible into cash and have maturities of three months or less at the time of acquisition.

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Receivables

Receivables are reflected net of an allowance for doubtful accounts and sales returns.ÌýÌýÌýA provision for bad debts is provided as a percentage of accounts receivable based on historical experience and included in selling, general and administrative expense.ÌýÌýA provision for vendor receivables are determined based on an estimate of probable expected losses and included in cost of goods sold. A summary of activity in the allowance for doubtful accounts is as follows:

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Inventory

Inventory, consisting primarily of products held for sale, is stated at the lower of cost or market.ÌýÌýCost is determined by the average cost method, which approximates the first-in, first-out method.ÌýÌýAssessments about the realizability of inventory require the Company to make judgments based on currently available information about the likely method of disposition including sales to individual customers, returns to product vendors, liquidations and the estimated recoverable values of each disposition category.ÌýÌýInventory is stated net of inventory obsolescence reserves of $86 million and $88 million for the years ended December 31, 2014 and 2013, respectively.

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Investments

All marketable equity and debt securities held by the Company are classified as available-for-sale ("AFS") and are carried at fair value generally based on quoted market prices.ÌýÌýU.S. generally accepted accounting principles ("GAAP") permit entities to choose to measure many financial instruments, such as AFS securities, and certain other items at fair value and to recognize the changes in fair value of such instruments in the entity's statement of operations (the "fair value option").ÌýÌýLiberty had previously entered into economic hedges for certain of its non-strategic AFS securities (although such instruments were not accounted for as fair value hedges by the Company).ÌýÌýChanges in the fair value of these economic hedges were reflected in Liberty's statement of operations as unrealized gains (losses).ÌýÌýIn order to better match the changes in fair value of the subject AFS securities and the changes in fair value of the corresponding economic hedges in the Company's financial statements, Liberty has elected the fair value option for those of its AFS securities which it considers to be non-strategic ("Fair Value Option Securities").ÌýÌýAccordingly, changes in the fair value of Fair Value Option Securities, as determined by quoted market prices, are reported in realized and unrealized gains (losses) on financial instruments in the accompanying consolidated statement of operations.ÌýÌýThe total value of AFS securities for which the Company has elected the fair value option aggregated $1,220 million and $1,309 million as of December 31, 2014 and 2013, respectively.

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Other investments in which the Company's ownership interest is less than 20%, unless the Company has the ability to exercise significant influence, and that are not considered marketable securities are carried at cost.

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For those investments in affiliates in which the Company has the ability to exercise significant influence, the equity method of accounting is used.ÌýÌýUnder this method, the investment, originally recorded at cost, is adjusted to recognize the Company's share of net earnings or losses of the affiliate as they occur rather than as dividends or other distributions are received.ÌýÌýLosses are limited to the extent of the Company's investment in, advances to and commitments for the investee.ÌýÌýIn the event the Company is unable to obtain accurate financial information from an equity affiliate in a timely manner, the Company records its share of earnings or losses of such affiliate on a lag (see note 8).ÌýÌýThe Company's share of net earnings or loss of affiliates also includes any other than temporary declines in fair value recognized during the period.

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Changes in the Company's proportionate share of the underlying equity of an equity method investee, which result from the issuance of additional equity securities by such equity investee, are recognized in the statement of operations through the other, net line item.ÌýÌýTo the extent there is a difference between our ownership percentage in the underlying equity of an equity method investee and our carrying value, such difference is accounted for as if the equity method investee were a consolidated subsidiary.

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The Company continually reviews its equity investments and its AFS securities which are not Fair Value Option Securities to determine whether a decline in fair value below the carrying value is other than temporary.ÌýÌýThe primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company's carrying value; the severity of the decline; and the financial condition, operating performance and near term prospects of the investee.ÌýÌýIn addition, the Company considers the reason for the decline in fair value, be it general market conditions, industry specific or investee specific; analysts' ratings and estimates of 12 month share price targets for the investee; changes in stock price or valuation subsequent to the balance sheet date; and the Company's intent and ability to hold the investment for a period of time sufficient to allow for a recovery in fair value.ÌýÌýIf the decline in fair value is deemed to be other than temporary, the carrying value of the security is written down to fair value.ÌýÌýIn situations where the fair value of an investment is not evident due to a lack of a public market price or other factors, the Company uses its best estimates and assumptions to arrive at the estimated fair value of such investment.ÌýÌýThe Company's assessment of the foregoing factors involves considerable management judgment and accordingly, actual results may differ materially from the Company's estimates and judgments.ÌýÌýWritedowns for AFS securities which are not Fair Value Option Securities would be included in the consolidated statements of operations as other than temporary declines in fair values of investments.ÌýÌýWritedowns for equity method investments would be included in share of earnings (losses) of affiliates.

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Derivative Instruments and Hedging Activities

All of the Company's derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value.ÌýÌýIf the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings.ÌýÌýIf the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive earnings and are recognized in the statement of operations when the hedged item affects earnings.ÌýÌýIneffective portions of changes in the fair value of cash flow hedges are recognized in earnings.ÌýÌýIf the derivative is not designated as a hedge, changes in the fair value of the derivative are recognized in earnings.ÌýÌýThe Company has entered into several interest rate swap agreements to mitigate the cash flow risk associated with interest payments related to certain of its variable rate debt.ÌýÌýNone of the Company's derivatives are currently designated as hedges.

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The fair value of the Company's derivative instruments are estimated using the Black-Scholes model.ÌýÌýThe Black-Scholes model incorporates a number of variables in determining such fair values, including expected volatility of the underlying security and an appropriate discount rate.ÌýÌýThe Company obtains volatility rates from pricing services based on the expected volatility of the underlying security over the remaining term of the derivative instrument.ÌýÌýA discount rate is obtained at the inception of the derivative instrument and updated each reporting period in which equity collars are outstanding, based on the Company's estimate of the discount rate at which it could currently settle the derivative instrument.ÌýÌýThe Company considered its own credit risk as well as the credit risk of its counterparties in estimating the discount rate.ÌýÌýManagement judgment was required in estimating the Black-Scholes variables.

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Property and Equipment

Property and equipment consisted of the following:

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Property and equipment, including significant improvements, is stated at cost. Depreciation is computed using the straight-line method using estimated useful lives of 2 to 15 years for support equipment and 8 to 20 years for buildings and improvements.ÌýÌýDepreciation expense for the years ended December 31, 2014, 2013 and 2012 was $158 million, $147 million and $142 million, respectively.

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Intangible Assets

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment upon certain triggering events.ÌýÌýGoodwill and other intangible assets with indefinite useful lives (collectively, "indefinite lived intangible assets") are not amortized, but instead are tested for impairment at least annually.ÌýÌýOur annual impairment assessment of our indefinite-lived intangible assets is performed during the fourth quarter of each year.

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The Company utilizes a qualitative assessment for determining whether step one of the goodwill impairment analysis is necessary.ÌýÌýThe accounting guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.ÌýÌýIn evaluating goodwill on a qualitative basis the Company reviews the business performance of each reporting unit and evaluates other relevant factors as identified in the relevant accounting guidance to determine whether it was more likely than not that an indicated impairment exists for any of our reporting units. The Company considers whether there are any negative macroeconomic conditions, industry specific conditions, market changes, increased competition, increased costs in doing business, management challenges, the legal environments and how these factors might impact company specific performance in future periods. As part of the analysis the Company also considers fair value determinations for certain reporting units that have been made at various points throughout the current year and prior year for other purposes.

If a step one test is considered necessary based on the qualitative factors, the Company compares the estimated fair value of a reporting unit to its carrying value. Developing estimates of fair value requires significant judgments, including making assumptions about appropriate discount rates, perpetual growth rates, relevant comparable market multiples, public trading prices and the amount and timing of expected future cash flows. The cash flows employed in Liberty's valuation analyses are based on management's best estimates considering current marketplace factors and risks as well as assumptions of growth rates in future years. There is no assurance that actual results in the future will approximate these forecasts. For those reporting units whose carrying value exceeds the fair value, a second test is required to measure the impairment loss (the "Step 2 Test"). In the Step 2 Test, the fair value (Level 3) of the reporting unit is allocated to all of the assets and liabilities of the reporting unit with any residual value being allocated to goodwill. Any excess of the carrying value of the goodwill over this allocated amount is recorded as an impairment charge.

The accounting guidance also permits entities to first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports that it is more likely than not that the carrying value of the Company’s indefinite-lived intangible assets, other than goodwill, exceeds its fair value, then a quantitative assessment is performed. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

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Impairment of Long-lived Assets

The Company periodically reviews the carrying amounts of its property and equipment and its intangible assets (other than goodwill and indefinite-lived intangibles) to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable.ÌýÌýIf the carrying amount of the asset group is greater than the expected undiscounted cash flows to be generated by such asset group, including its ultimate disposition, an impairment adjustment is to be recognized.ÌýÌýSuch adjustment is measured by the amount that the carrying value of such asset groups exceeds their fair value.ÌýÌýThe Company generally measures fair value by considering sale prices for similar asset groups or by discounting estimated future cash flows using an appropriate discount rate.ÌýÌýConsiderable management judgment is necessary to estimate the fair value of asset groups.ÌýÌýAccordingly, actual results could vary significantly from such estimates.ÌýÌýAsset groups to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.

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Noncontrolling Interests

The Company reports noncontrolling interests of subsidiaries within equity in the balance sheet and the amount of consolidated net income attributable to the parent and to the noncontrolling interest is presented in the statement of operations.ÌýÌýAlso, changes in ownership interests in subsidiaries in which the Company maintains a controlling interest are recorded in equity.

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Foreign Currency Translation

The functional currency of the Company is the United States (''U.S.'') dollar.ÌýÌýThe functional currency of the Company's foreign operations generally is the applicable local currency for each foreign subsidiary.ÌýÌýAssets and liabilities of foreign subsidiaries are translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of operations are translated at the average exchange rates in effect during the applicable period.ÌýÌýThe resulting unrealized cumulative translation adjustment, net of applicable income taxes, is recorded as a component of accumulated other comprehensive earnings in stockholders' equity.

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Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise.ÌýÌýSubsequent changes in exchange rates result in transaction gains and losses which are reflected in the accompanying consolidated statements of operations and comprehensive earnings (loss) as unrealized (based on the applicable period-end exchange rate) or realized upon settlement of the transactions.

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Revenue Recognition

Retail revenue is recognized at the time of delivery to customers.ÌýÌýThe revenue for shipments in-transit is recorded as deferred revenue and included in other current liabilities.ÌýÌýService revenue is recognized when the applicable criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the price is fixed and determinable and collectability is reasonably assured.

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An allowance for returned merchandise is provided as a percentage of sales based on historical experience.ÌýÌýThe total reduction in sales due to returns for the years ended December 31, 2014, 2013 and 2012 aggregated $2,123 million, $2,134 million and $2,037 million, respectively.ÌýÌýSales tax collected from customers on retail sales is recorded on a net basis and is not included in revenue.

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In May 2014, the Financial Accounting Standards Board issued new accounting guidance on revenue from contracts with customers. The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a retrospective or cumulative effect transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its revenue recognition but does not believe that the standard will significantly impact its financial statements and related disclosures.

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Cost of Sales

Cost of sales primarily includes actual product cost, provision for obsolete inventory, buying allowances received from suppliers, shipping and handling costs and warehouse costs.

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Advertising Costs

Advertising costs generally are expensed as incurred.ÌýÌýAdvertising expense aggregated $271 million, $258 million and $247 million for the years ended December 31, 2014, 2013 and 2012, respectively. Advertising costs are reflected in the Selling, general and administrative expense line item in our consolidated statements of operations.

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Stock-Based Compensation

As more fully described in note 14, the Company has granted to its directors, employees and employees of its subsidiaries options, restricted stock and stock appreciation rights ("SARs") to purchase shares of Liberty Interactive and/or Liberty Ventures common stock ("Liberty common stock") (collectively, "Awards").ÌýÌýThe Company measures the cost of employee services received in exchange for an Award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award).ÌýÌýThe Company measures the cost of employee services received in exchange for an Award of liability instruments (such as stock appreciation rights that will be settled in cash) based on the current fair value of the Award, and remeasures the fair value of the Award at each reporting date.

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Stock compensation expense was $108 million, $118 million and $91 million for the years ended December 31, 2014, 2013 and 2012, respectively, included in selling, general and administrative expense in the accompanying consolidated statements of operations.

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Income Taxes

The Company accounts for income taxes using the asset and liability method.ÌýÌýDeferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying value amounts and income tax bases of assets and liabilities and the expected benefits of utilizing net operating loss and tax credit carryforwards.ÌýÌýThe deferred tax assets and liabilities are calculated using enacted tax rates in effect for each taxing jurisdiction in which the Company operates for the year in which those temporary differences are expected to be recovered or settled.ÌýÌýNet deferred tax assets are then reduced by a valuation allowance if the Company believes it more likely than not such net deferred tax assets will not be realized.ÌýÌýThe effect on deferred tax assets and liabilities of an enacted change in tax rates is recognized in income in the period that includes the enactment date.

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When the tax law requires interest to be paid on an underpayment of income taxes, the Company recognizes interest expense from the first period the interest would begin accruing according to the relevant tax law.ÌýÌýSuch interest expense is included in interest expense in the accompanying consolidated statements of operations.ÌýÌýAny accrual of penalties related to underpayment of income taxes on uncertain tax positions is included in other income (expense) in the accompanying consolidated statements of operations.

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Earnings (Loss) Attributable to Liberty Interactive Corporation Stockholders and Earnings (Loss) Per Common Share

Net earnings (loss) attributable to Liberty stockholders is comprised of the following (amounts in millions):

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Basic earnings (loss) per common share ("EPS") is computed by dividing net earnings (loss) attributable to such common stock by the weighted average number of common shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented.

SeriesÌýA and SeriesÌýB Liberty Interactive Corporation Common Stock

The basic and diluted EPS calculation for Liberty Interactive Corporation prior to the recapitalization is based on the following weighted average outstanding shares. Excluded from diluted EPS, for the period prior to the recapitalization, are less than a million potential common shares because their inclusion would be antidilutive.

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SeriesÌýA and SeriesÌýB Liberty Interactive Common Stock

Liberty completed a recapitalization on August 9, 2012, whereby each holder of current Liberty Interactive Corporation common stock became a holder of the same number of Liberty Interactive common stock. EPS for the period from the recapitalization through DecemberÌý31, 2014, is based on the following weighted average outstanding shares.ÌýÌýExcluded from diluted EPS for the year ended DecemberÌý31, 2014 are approximately 1 million potential common shares because their inclusion would be antidilutive.

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SeriesÌýA and SeriesÌýB Liberty Ventures Common Stock

Liberty completed a recapitalization on August 9, 2012, whereby each holder of then-existing Liberty Interactive common stock received 0.05 of a share of the corresponding series of Liberty Ventures common stock, by means of a dividend, with cash paid in lieu of fractional shares of Liberty Ventures common stock.ÌýÌýAdditionally, as part of the recapitalization Liberty distributed subscription rights, which were priced at a discount to the market value, to all holders of Liberty Ventures common stock, see further discussion in note 12.ÌýÌýThe rights offering, because of the discount, is considered a stock dividend which requires retroactive treatment for prior periods for the weighted average shares outstanding. As discussed in note 2, Liberty completed a two for one stock split on April 11, 2014 on its Series A and Series B Liberty Ventures common stock.ÌýÌýTherefore, all prior period outstanding share amounts have been retroactively adjusted for comparability.

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Additionally, as discussed in note 2, on October 3, 2014, Liberty attributed from the QVC Group to the Ventures Group its Digital Commerce companies. In exchange for the Reattributed Assets, Inter-Group Interest Shares in the Ventures Group were created in favor of the QVC Group. Immediately following the reattribution on October 3, 2014, Liberty's board declared a dividend of the Inter-Group Interest Shares to the holders of Series A and Series B Liberty Interactive common stock in full elimination of the inter-group interest. The Inter-Group Interest Shares were allocated, pro-rata, to the outstanding shares of Series A and Series B Liberty Interactive common stock at 5:00 p.m., New York City time, on October 13, 2014, the record date for the dividend, such that each holder of Liberty Interactive common stock received 0.14217 of a share of the corresponding series of Liberty Ventures common stock for each share of Liberty Interactive common stock held as of the record date, with cash paid in lieu of fractional shares. The distribution date for the dividend was on October 20, 2014, and the Liberty Interactive common stock began trading ex-dividend on October 15, 2014. The reattribution of the Digital Commerce companies is presented on a prospective basis from the date of the reattribution in Liberty’s consolidated financial statements, with October 1, 2014 used as a proxy for the date of the reattribution.

EPS for the period from the recapitalization through DecemberÌý31, 2014, is based on the following weighted average outstanding shares.ÌýÌýExcluded from diluted EPS for the year ended DecemberÌý31, 2014 are less than a million potential common shares because their inclusion would be antidilutive.

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Reclasses and adjustments

Certain prior period amounts have been reclassified for comparability with the current year presentation.

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Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.ÌýÌýActual results could differ from those estimates.ÌýÌýLiberty considers (i) recurring and non-recurring fair value measurements, (ii) accounting for income taxes, (iii) assessments of other-than-temporary declines in fair value of its investments and (iv) estimates of retail-related adjustments and allowances to be its most significant estimates.

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Liberty holds investments that are accounted for using the equity method.ÌýÌýLiberty does not control the decision making process or business management practices of these affiliates.ÌýÌýAccordingly, Liberty relies on management of these affiliates to provide it with accurate financial information prepared in accordance with GAAP that Liberty uses in the application of the equity method.ÌýÌýIn addition, Liberty relies on audit reports that are provided by the affiliates' independent auditors on the financial statements of such affiliates.ÌýÌýThe Company is not aware, however, of any errors in or possible misstatements of the financial information provided by its equity affiliates that would have a material effect on Liberty's consolidated financial statements.