Analyzing Unearned Revenue Disclosures The following disclosures are from the September 1, 2013, annual report of Costco Wholesale Corporation. Revenue Recognition: Membership fee revenue represents annual membership fees paid by substantially all of the Company's members. The Company accounts 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) September 1, 2013 September 2, 2012 August 28, 2011 Net Sales $102,870 $97,062 $87,048 Membership fees 2.286 2.075 1.867 Total revenue $ 105,156 $ 99,137 $ 88,915 Current Liabilities ($ millions) September 1, 2013 September 2, 2012 Accounts payable $7,872 $7,303 Accrued salaries and benefits 2,037 1,832 Accrued member rewards 710 661 Accrued sales and other taxes 382 397 Deferred membership fees 1,167 1,101 Other current liabilities 1,089 966 Total current liabilities $ 13,257 $ 12,260 (a) Which of the following statements best explains in layman terms how Costco accounts for the cash received for its membership fees? Because 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. When it receives cash, the company records it as a current liability. Then, it recognizes revenue evenly over the year. The company records revenue when the cash is received. Because 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 2013 to compute the cash that Costco received during 2013 for membership fees. Total cash received (in $ millions) = $ 0 X (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. Use negative signs with your 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 fees 0 x 0 OX 0 0 0 0 0 Membership fees earned 0 0 0 x 0 0 x 0x Ox 0 Analyzing Unearned Revenue Disclosures The following disclosures are from the September 1, 2013, annual report of Costco Wholesale Corporation. Revenue Recognition: Membership fee revenue represents annual membership fees paid by substantially all of the Company's members. The Company accounts 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) September 1, 2013 September 2, 2012 August 28, 2011 Net Sales $102,870 $97,062 $87,048 Membership fees 2.286 2.075 1.867 Total revenue $ 105,156 $ 99,137 $ 88,915 Current Liabilities ($ millions) September 1, 2013 September 2, 2012 Accounts payable $7,872 $7,303 Accrued salaries and benefits 2,037 1,832 Accrued member rewards 710 661 Accrued sales and other taxes 382 397 Deferred membership fees 1,167 1,101 Other current liabilities 1,089 966 Total current liabilities $ 13,257 $ 12,260 (a) Which of the following statements best explains in layman terms how Costco accounts for the cash received for its membership fees? Because 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. When it receives cash, the company records it as a current liability. Then, it recognizes revenue evenly over the year. The company records revenue when the cash is received. Because 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 2013 to compute the cash that Costco received during 2013 for membership fees. Total cash received (in $ millions) = $ 0 X (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. Use negative signs with your 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 fees 0 x 0 OX 0 0 0 0 0 Membership fees earned 0 0 0 x 0 0 x 0x Ox 0