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An Amazon Prime Customer pays an annual $99 membership fee covering services for the next twleve...

An Amazon Prime Customer pays an annual $99 membership fee covering services for the next twleve months. Similarly, a Costco customer pays an annual $55 membership fees covering the next twelve months. REQUIRED: How should Amazon and Costco account for these fees received in advance? Explain

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Answer #1

When membership fee is received for full year or in advance, it should first be recorded as Deferred Revenue or Unearned Revenue.

Secondly, after expiry of every month the proportionate membership fee should be recognized as revenue.

For $ 99 membership Fee - first $ 99 should be recorded as Deferred Revenue or Unearned Revenue and then every month $ 8.25 ($ 99 / 12 Months) should be recorded as revenue for the month.

Similarly membership fee of $ 55 should be dealth with.

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