Question

Analyzing Unearned Revenue Disclosures The following disclosures are from the August 31, 2008, 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 on a deferred basis, whereby revenue is recognized ratably over the one-year term of the membership period. Revenue 52 weeks ended 52 weeks ended 52 weeks ended (5 millions) August 31, 2008 September 2, 2007 September 3. 2006 Net Sales $70.977 $63,088 $58.963 Membership fees 1.506 1.312 Total revenue $ 72,483 $ 64,400 $ 60.151 1.188 Support $ 54 Current Liabilities (5 millions) August 31, 2008 September 2, 2007 Short-term borrowings Accounts payable 5.225 Accrued salaries and benefits 1,321 Accrued sales and other taxes 283 268 Deferred membership fees 748 692 Current potion of long-term debt Other current liabilities 1.157 1.156 Total revenue $ 8.874 $8.582 60

Answer 1

Costco Wholesale Corporation Reqirement a (in million $) When it receives cash, the company records it as current liability. Then it recognizes revenu evenly over the year. Reqirement b Membership Fees Add:Deferred Membership fees 31.8.2008 1506 748 2254 -692 1562 Less:Deferred Membership fees 2.9.2007 Cash received for Membership fees

Reqirement c Earned + Capital Trans. Cash recd. For membership fees Membership fees earned Cash 1562 Contibuted + Non Cash = Liabilities + Capital 1562 -1506 1506 Income Statement Revenue - Expenses = Net Income 0 1506 1506