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.
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52 weeks 52 weeks 52 weeks
Revenue ended ended ended
(S millions) August 29, August 30, August 31,
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2010
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2009
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2008
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Net Sales
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$76,255
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$69,889
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$70,977
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Membership fees
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1,691
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1,533
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1,506
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Total revenue
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$ 77,946
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$ 71,422
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$ 72,483
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Current Liabilities
(S millions)
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August 29,
2010
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August 30,
2009
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Short-term borrowings
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$ 26
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$ 16
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Accounts payable
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5,947
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5,450
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Accrued salaries and benefits
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1,571
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1,418
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Accrued sales and other taxes
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322
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302
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Deferred membership fees
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869
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824
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Current potion of long-term debt
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80
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Other current liabilities
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1,328
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1,191
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Total revenue
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$ 10,063
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$ 9,281
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The components of the deferred tax assets and liabilities are as follows (in $ millions):
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August 29,
2010
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August 30,
2009
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Equity compensation
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5112
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5 117
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Deferred income/membership fees
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118
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94
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Accrued liabilities and reserves
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392
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408
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Other
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35
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48
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Total deferred tax assets
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657
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667
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Property and equipment
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414
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403
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Merchandise inventories
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170
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184
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Total deferred tax liabilities
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584
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587
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Net deferred taxes
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$ 73
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5 80
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(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.