QUESTION B.1: Revenue and Expense Recognition This problem consists of five questions: four essay questions and one numerical question. Please provide short, concise answers to each question. Please note that the maximum recommended word count for each essay question is 210 words. a) Costco Wholesale Corporation is an American multinational corporation which operates a chain of membership-only warehouse clubs. Upon purchase of one-year, non-refundable memberships, Costco members can buy at discounted prices a selection of products in a wide range of categories (e.g., groceries & household, health & beauty, wines & spirits, appliances, electronics, computers etc.). In certain countries, Costco's top customers (Executive Members) qualify for a 2% reward on their purchases, which does not expire. Discuss how Costco should account for its revenue, together with any issues that may arise in the recognition of expenses. [7 marks] b) Costco has agreements to receive rebates (money back) from their suppliers upon reaching pre- specified sale volumes. Discuss the alternative ways in which Costco could report these rebates. In your opinion, which of these alternatives reflects better the economic substance of the rebates? Explain. [7 marks] c) As a result of the coronavirus crisis, banks worldwide are bracing for substantial bad debt build ups over the coming months and also in 2021. Discuss how this problem is likely to be reflected in the upcoming quarterly reports of the worst affected banks, emphasising the effect on earnings, cash flows from operations, assets and liabilities. [7 marks] d) Company A reports under IFRS and capitalises certain development costs as mandated by IFRS. The company is in steady state and the amount invested in development is roughly the same every year. In the manager's opinion: "Capitalising development costs is hurting us. Although our net income is unaffected by this accounting policy, our assets are higher. Investors assessing the company may wrongly conclude that we do not utilise our assets very efficiently since our asset turnover (= revenue/assets) is affected by capitalisation." What do you think about this statement? Is the manager right? Explain your answer. [7 marks]