Homework Help is Here – Start Your Trial Now!
Business
Accounting
Analyzing Unearned Revenue Disclosures The following disclosures are from the September 3, 2006, 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. 52 weeks ended 52 weeks ended Revenue ($ millions) September 3, 2006 August 28, 2005 Net Sales $58,963 1,188 $51,879 1,073 Membership fees Total revenue $ 60,151 $ 52.952 52 weeks ended August 29, 2004 $47,149 961 $ 48,110 Current Liabilities ($ millions) September 3, 2006 August 28, 2005 Short-term borrowings $41 $54 Accounts payable 4,581 Accrued salaries and benefits 1,080 Accrued sales and other taxes 324 584 309 899 $7,818 Deferred membership fees Current potion of long-term debt Other current liabilities Total revenue 4,225 1,025 264 501 3 689 $ 6,761 (a) Which of the following statements best explains in layman terms how Costco accounts for the cash received for its membership fees? OBecause 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. OWhen it receives cash, the company records it as a current liability. Then, it recognizes revenue evenly over the year. OThe company records revenue when the cash is received. OBecause Costco has a refund policy, the company records revenue when the cash is received, less an allowance for expected membership terminations. (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) = $

Analyzing Unearned Revenue Disclosures The following disclosures are from the September 3, 2006, 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. 52 weeks ended 52 weeks ended Revenue ($ millions) September 3, 2006 August 28, 2005 Net Sales $58,963 1,188 $51,879 1,073 Membership fees Total revenue $ 60,151 $ 52.952 52 weeks ended August 29, 2004 $47,149 961 $ 48,110 Current Liabilities ($ millions) September 3, 2006 August 28, 2005 Short-term borrowings $41 $54 Accounts payable 4,581 Accrued salaries and benefits 1,080 Accrued sales and other taxes 324 584 309 899 $7,818 Deferred membership fees Current potion of long-term debt Other current liabilities Total revenue 4,225 1,025 264 501 3 689 $ 6,761 (a) Which of the following statements best explains in layman terms how Costco accounts for the cash received for its membership fees? OBecause 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. OWhen it receives cash, the company records it as a current liability. Then, it recognizes revenue evenly over the year. OThe company records revenue when the cash is received. OBecause Costco has a refund policy, the company records revenue when the cash is received, less an allowance for expected membership terminations. (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) = $

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
Analyzing Unearned Revenue Disclosures The following disclosures are from the September 3, 2006, 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. 52 weeks ended 52 weeks ended 52 weeks ended Revenue ($ millions) September 3, 2006 August 28, 2005 August 29, 2004 Net Sales $47,149 $58,963 1,188 $51,879 1,073 Membership fees 961 $48,110 Total revenue $ 60,151 $ 52,952 Current Liabilities ($ millions) September 3, 2006 August 28, 2005 Short-term borrowings $41 $54 4,225 1,025 Accounts payable Accrued salaries and benefits Accrued sales and other taxes Deferred membership fees Current potion of long-term debt Other current liabilities Total revenue 4,581 1,080 324 584 309 899 $7,818 264 501 3 689 $ 6,761 (a) Which of the following statements best explains in layman terms how Costco accounts for the cash received for its membership fees? OBecause 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. OWhen it receives cash, the company records it as a current liability. Then, it recognizes revenue evenly over the year. OThe company records revenue when the cash is received. OBecause Costco has a refund policy, the company records revenue when the cash is received, less an allowance for expected membership terminations. (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) = $
Transcribed Image Text:Analyzing Unearned Revenue Disclosures The following disclosures are from the September 3, 2006, 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. 52 weeks ended 52 weeks ended 52 weeks ended Revenue ($ millions) September 3, 2006 August 28, 2005 August 29, 2004 Net Sales $47,149 $58,963 1,188 $51,879 1,073 Membership fees 961 $48,110 Total revenue $ 60,151 $ 52,952 Current Liabilities ($ millions) September 3, 2006 August 28, 2005 Short-term borrowings $41 $54 4,225 1,025 Accounts payable Accrued salaries and benefits Accrued sales and other taxes Deferred membership fees Current potion of long-term debt Other current liabilities Total revenue 4,581 1,080 324 584 309 899 $7,818 264 501 3 689 $ 6,761 (a) Which of the following statements best explains in layman terms how Costco accounts for the cash received for its membership fees? OBecause 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. OWhen it receives cash, the company records it as a current liability. Then, it recognizes revenue evenly over the year. OThe company records revenue when the cash is received. OBecause Costco has a refund policy, the company records revenue when the cash is received, less an allowance for expected membership terminations. (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) = $
(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. Transaction ($ millions) Cash received for membership fees Membership fees earned Cash Asset + Noncash Assets = Balance Sheet Liabilities + Contributed Capital + Earned Capital Revenue Income Statement - Expenses = Net Income
Transcribed Image Text:(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. Transaction ($ millions) Cash received for membership fees Membership fees earned Cash Asset + Noncash Assets = Balance Sheet Liabilities + Contributed Capital + Earned Capital Revenue Income Statement - Expenses = Net Income
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Financial Reporting in Hyperinflationary Economies
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS