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gregori [183]
4 years ago
3

The following disclosures (excerpted) are from the September 2, 2018, annual report of Costco Wholesale Corporation.

Business
1 answer:
Norma-Jean [14]4 years ago
6 0

Answer:

Which of the following statements best explains in layman terms how Costco accounts for the cash received for its membership fees?

  • b. When it receives cash, the company records it as a current liability. Then, it recognizes revenue evenly over the year.

Explanation:

The first part of the question clearly states that Costco reports membership fees as unearned revenue. As time passes, and the fees are accrued, it recognizes them as earned revenue. Since the membership fees last for a year, Costco recognizes the revenue associated to them evenly throughout the whole year.

Membership fees are not static, as some fees expire, new ones are received. That is why the membership fees account does not vary significantly during the year, but instead it should follow a relatively stable path.

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