P5-55 Analyzing Unearned Revenue Disclosures The following disclosures (excerpted) are from the September 2, 2018, annual report of Costco Whole- sale Corporation. The Company generally recognizes sales, net of returns, at the time the member takes posses- sion of merchandise or receives services. When the Company collects payments from members prior to the transfer of ownership of mer- chandise or the performance of services, the amounts received are generally recorded as de- ferred sales, included in other current liabilities in the consolidated balance sheets, until the sale or service is completed. The Company reserves for estimated sales returns based on historical trends in merchandise returns and reduces sales and merchandise costs accordingly. The Company accounts for membership fee revenue, net of refunds, on a deferred basis, ratably over the one-year membership. The Company's Executive members qualify for a 2% reward on qualified purchases (up to a maximum reward of approximately $1,000 per year), which can be redeemed only at Costco warehouses. The Company accounts for this reward as a reduction in sales. The sales reduction and corresponding liability (classified as accrued member rewards in the consolidated balance sheets) are computed after giving effect to the estimated impact of non-redemptions, based on historical data. The net reduction in sales was $1,394, $1,281, and $1,172 in 2018, 2017, and 2016, respectively. Revenue ($ millions) Net sales... Sept. 2, 2018 Sept. 3, 2017 Aug. 28, 2016 Membership fees Total revenue $138,434 3,142 $126,172 2,853 $116,073 2,646 $141,576 $129,025 $118,719 Current Liabilities ($ millions) Sept. 2, 2018 Sept. 3, 2017 Accounts payable..... $11,237 $9,608 Accrued salaries and benefits 2,994 2,703 Accrued member rewards.... 1,057 961 Deferred membership fees.. 1,624 1,498 Other current liabilities... 3,014 2,725 Total current liabilities... $19,926 $17,495 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 fiscal 2018 to compute the cash Costco received during fiscal 2018 for membership fees. c. Use the financial statement effects template to show the effect of the cash Costco received during fiscal 2018 for membership fees and the recognition of membership fees revenue for fiscal 2018. d. Explain in plain language the "accrued member rewards" liability. e. Complete the following sentence. Costco recorded sales of at least $ Executive members, during fiscal 2018. from the Company's