Analyzing Unearned Revenue Disclosures The following disclosures (excerpted) are from the August 28, 2016, annual report of Costco Wholesale Corporation.

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) August 28, 2016 August 30, 2015 August 31, 2014 Net sales. . . . . . . . . . . . . . . . . . . . . . . . $116,073 $113,666 $110,212 Membership fees . . . . . . . . . . . . . . . . . 2,646 2,533 2,428 Total revenue. . . . . . . . . . . . . . . . . . . $118,719 $116,199 $112,640 Current Liabilities ($ millions) August 28, 2016 August 30, 2015 Accounts payable. . . . . . . . . . . . . . . . . $ 7,612 $ 9,011 Current portion of long-term debt . . . . 1,100 1,283 Accrued salaries and benefits . . . . . . . 2,629 2,468 Accrued member rewards . . . . . . . . . . 869 813 Deferred membership fees. . . . . . . . . . 1,362 1,269 Other current liabilities . . . . . . . . . . . . . 2,003 1,695 Total current liabilities . . . . . . . . . . . . $15,575 $16,539 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 2016 to compute the cash Costco received during 2016 for membership fees.

c. Use the financial statement effects template to show the effect of the cash Costco received during 2016 for membership fees and the recognition of membership fees revenue for 2016.