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 th membership period. Revenue 52 weeks ended 52 weeks ended 52 weeks ended ($ millions) August 31, 2008 September 2, 2007 September 3, 2006 Net Sales $70,977 $63,088 $58.963 Membership fees 1.506 1.312 1.188 Total revenue $ 72,483 $ 64,400 $ 60.151 Current Liabilities ($ millions) August 31, 2008 September 2, 2007 Short-term borrowings $ 134 $ 54 Accounts payable 5.225 5.125 Accrued salaries and benefits 1,321 1.227 Accrued sales and other taxes 268 Deferred membership fees 748 692 Current potion of long-term debt Other current liabilities 1.157 1.156 Total revenue 58.874 $ 8.582 283 (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. 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. When it receives cash, the company records it as a current liability. Then, it recognizes revenue evenly over the year. (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 2008 to compute the cash that Costco received during 2008 for membership fees. Total cash received (in $ millions) = $ (c) Use the financial statement effects template to show the effect of the cash Costco received during 2008 for membership fees and the recognition of membership fees revenue for 2008. Use negative signs with answers, when appropriate. Balance Sheet Liabilities + Contributed Capital + Earned Capital Income Stateme - Expenses Cash Asset + Noncash Assets = Revenue Transaction ($ millions) Cash received for membership fees Membership fees earned