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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) = $

Century 21 Accounting Multicolumn Journal
Century 21 Accounting Multicolumn Journal
11th Edition
ISBN:9781337679503
Author:Gilbertson
Publisher:Gilbertson
Chapter21: Accounting For Accruals, Deferrals, And Reversing Entries
Section: Chapter Questions
Problem 1MP
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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
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