The following disclosures (excerpted) are from the September 1, 2013, annual report of Costco Wholesale Corporation.

Required

a. Explain in layman's terms how Costco accounts for the cash received for membership fees.

b. Use the balance sheet information on Costco's deferred membership fees liability account and its income statement revenues related to membership fees earned during 2013 to compute the cash that Costco received during 2013 for membership fees.

c. Use the financial statement effects template to show the effect of the cash Costco received during 2013 for membership fees and the recognition of membership fees revenue for 2013.

d. Costco reports a deferred tax asset related to deferred income/membership fees. Explain in layman's terms how this asset arises. When will Costco receive the benefit associated with this asset?

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Revenue Recognition We generally recognize sales, net of estimated returns, at the time the member takes possession of merchandise or receives services. When we collect payment from customers prior to the transfer of ownership of merchandise or the performance of services, the amount received is generally recorded as deferred revenue on the consolidated balance sheets until the sale or service is completed. Membership fee revenue represents annual membership fees paid by our members. We account for membership fee revenue, net of estimated refunds, on a deferred basis, whereby revenue is recognized ratably over the one-year membership period. Revenue ($ millions) Net sales.... Membership fees Total revenue....... September 1, 2013 September 2, 2012 $97,062 2,075 $99,137 $102,870 2,286 $105,156 Current Liabilities ($ millions) Accounts payable..... Accrued salaries and benefits Accrued member rewards Accrued sales and other taxes. Deferred membership fees.. Other current liabilities... Total current liabilities.. August 28, 2011 $87,048 1,867 $88,915 September 1, 2013 September 2, 2012 $ 7,872 2,037 710 382 1,167 1,089 $13,257 $ 7,303 1,832 661 397 1,101 966 $12,260 The components of the deferred tax assets (liabilities) are as follows (in $ millions):