Reference no: EM13841171

Analyzing Unearned Revenue Disclosures

The following disclosures are from the August 29, 2010, annual report of Costco Wholesale Corporation.

Revenue Recognition: We generally recognize sales, net of estimated returns, at the time the member takes possession of merchandise or receives services. When we collect payment from customers prior to the transfer of ownership of merchandise or the performance of services, the amount received is generally recorded as deferred revenue on the consolidated balance sheets until the sale or service is completed. Membership fee revenue represents annual membership fees paid by our members. We account for membership fee revenue, net of estimated refunds, on a deferred basis, whereby revenue is recognized ratably over the one-year membership period.

52 weeks             52 weeks          52 weeks Revenue                  ended                 ended                  ended (S millions)              August 29,           August 30,     August 31,

	2010	2009	2008
Net Sales	$76,255	$69,889	$70,977
Membership fees	1,691	1,533	1,506
Total revenue	$ 77,946	$ 71,422	$ 72,483

Current Liabilities (S millions)	August 29, 2010	August 30, 2009
Short-term borrowings	$ 26	$ 16
Accounts payable	5,947	5,450
Accrued salaries and benefits	1,571	1,418
Accrued sales and other taxes	322	302
Deferred membership fees	869	824
Current potion of long-term debt		80
Other current liabilities	1,328	1,191
Total revenue	$ 10,063	$ 9,281

The components of the deferred tax assets and liabilities are as follows (in $ millions):

	August 29, 2010	August 30, 2009
Equity compensation	5112	5 117
Deferred income/membership fees	118	94
Accrued liabilities and reserves	392	408
Other	35	48
Total deferred tax assets	657	667
Property and equipment	414	403
Merchandise inventories	170	184
Total deferred tax liabilities	584	587
Net deferred taxes	$ 73	5 80

(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 2010 to compute the cash that Costco received during 2010 for membership fees.

Total cash received (in 5 millions) =

(c)  Use the financial statement effects template to show the effect of the cash Costco received during 2010 for membership fees and the recognition of membership fees revenue for 2010.