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 on a deferred basis, whereby revenue is recognized ratably over the one-year term of the membership period.

Revenue ($ millions)	52 weeks ended September 3, 2006	52 weeks ended August 28, 2005	52 weeks ended August 29, 2004
Net Sales	$58,963	$51,879	$47,149
Membership fees	1,188	1,073	961
Total revenue	$ 60,151	$ 52,952	$ 48,110

Current Liabilities ($ millions)	September 3, 2006	August 28, 2005
Short-term borrowings	$ 41	$ 54
Accounts payable	4,581	4,225
Accrued salaries and benefits	1,080	1,025
Accrued sales and other taxes	324	264
Deferred membership fees	584	501
Current potion of long-term debt	309	3
Other current liabilities	899	689
Total revenue	$ 7,818	$ 6,761

(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.

Mark 1.00 out of 1.00

(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 2006 to compute the cash that Costco received during 2006 for membership fees. Total cash received (in $ millions) = $Answer

(c) Use the financial statement effects template to show the effect of the cash Costco received during 2006 for membership fees and the recognition of membership fees revenue for 2006.

Use negative signs with your answers, when appropriate.

	Balance Sheet
Transaction ($ millions)	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
Cash received for membership fees	Answer		Answer		Answer		Answer		Answer
Membership fees earned	Answer		Answer		Answer		Answer		Answer

Income Statement

Revenue

-

Expenses

=

Net Income

Answer

Answer

Answer

Correct Mark 1.00 out of 1.00

Answer

Answer

Answer

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 on a deferred basis, whereby revenue is recognized ratably over the one-year term of the membership period.

Revenue ($ millions)	52 weeks ended September 3, 2006	52 weeks ended August 28, 2005	52 weeks ended August 29, 2004
Net Sales	$58,963	$51,879	$47,149
Membership fees	1,188	1,073	961
Total revenue	$ 60,151	$ 52,952	$ 48,110

Current Liabilities ($ millions)	September 3, 2006	August 28, 2005
Short-term borrowings	$ 41	$ 54
Accounts payable	4,581	4,225
Accrued salaries and benefits	1,080	1,025
Accrued sales and other taxes	324	264
Deferred membership fees	584	501
Current potion of long-term debt	309	3
Other current liabilities	899	689
Total revenue	$ 7,818	$ 6,761

(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.

Mark 1.00 out of 1.00

(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 2006 to compute the cash that Costco received during 2006 for membership fees. Total cash received (in $ millions) = $Answer

(c) Use the financial statement effects template to show the effect of the cash Costco received during 2006 for membership fees and the recognition of membership fees revenue for 2006.

Use negative signs with your answers, when appropriate.

	Balance Sheet
Transaction ($ millions)	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
Cash received for membership fees	Answer		Answer		Answer		Answer		Answer
Membership fees earned	Answer		Answer		Answer		Answer		Answer

Income Statement
Revenue	-	Expenses	=	Net Income
Answer		Answer		Answer Correct Mark 1.00 out of 1.00
Answer		Answer		Answer