5 Incomplete Marked out of 19.00 Pag question Analyzing Unearned Revenue Disclosures The following disclosures are from the August 30, 2009, 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) Net Sales Membership fees Total revenue 52 weeks ended 52 weeks ended 52 weeks ended August 30, 2009 August 31, 2008 September 2, 2007 $70,977 $60,889 $63,088 1,533 $71,422 1,506 1,313 $ 72,483 564,401 Current Liabilities ($millions) August 30, 2009 August 31, 2008 Short-term borrowings $16 $134 Accounts payable 5,450 5,225 Accrued salaries and benefits 1,418 1,321 Accrued sales and other 283 Deferred membership fees 824 248 Current potion of long-term debt 80 Other current liabilitie Total revenu 1,191 1,157 $9,281 58874 (a) Which of the following statements best explains in layman terms how Costco accounts for the cash received for its membership fees? OWhen it receives cash, the company records it as a current liability. Then, it recognizes revenue evenly over the year. OBecause Costco does not know how many of its members will continue to the end of the year, cash received from members is recorded as a liability and recognized as revenue only at year-end. OThe company records revenue when the cash is received. OBecause Costco has a refund policy, the company records revenue when the cash is received, less an allowance for expected membership terminations. (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 2009 to compute the cash that Costco received during 2009 for membership fees. Total cash received (in $ millions) - $0 (c) Use the financial statement effects template to show the effect of the cash Costco received during 2009 for membership fees and the recognition of membership fees revenue for 2009. Use negative signs with answers, when appropriate. Balance Sheet Income Statement Transaction ($ millions) Cash Asset + Noncash Assets Liabilities + Contributed Capital + Earned Capital Revenue - Expenses Net Income Cash received for membership fe Membership fees earned 0 Please answer all parts of the