Question

1. Costco Wholesale Corporation collects annual non-refundable membership fees from customers. When should Costco recognize revenue for these membership fees? A) Immediately when cash is received because the fees are nonrefundable B) Evenly over the membership year C) Evenly over the current fiscal year D) At the end of the membership year when Costco has discharged its obligation to the customer E) Pro rata over the customer's actual purchasing pattern 2. The 2016 annual report of Leahy Enterprises included the following disclosure: During fiscal 2016, the U.S. dollar strengthened relative to the other principal currencies in which we transact business with the exception of the Indian rupee, in which it weakened compared to the rupee What effect did these currency fluctuations have on Leahy Enterprises' 2016 consolidated income statement? A) Net profit of the Indian subsidiary will be higher B) Net profit of the Indian subsidiary will be lower C) Net assets of the subsidiaries that report in the other principal currencies will be higher D) Net assets of the subsidiaries that report in the other principal currencies will be lower

Answer 1

Answer:1 B. Evenly over the membership year of the membership year.

2.C Net assets of the subsidiary report in the other principal currencies will be higher.

Step-by-step explanation:

Since the membership is for a definite period it will be spread evenly over the periods it applies because it's to cover membership.

It cant be recognized immediately, nor spread in the fiscal year only, it cannot reflect the customer purchasing pattern because it's not related neither should it wait till he has fulfilled his obligations to the customers because the fees is non refundable.

The loss or gain from foreign exchange transactions can either be from transactions or translations

When it relates to actual purchase or sales it's called transactions and it's reflected in income statement. when it relates consolidation or conversion of subsidiary's account to the parent company it's called translation and its reflected in the net assets.

In the above scenario it's foreign exchange translation and it will reflect in net assets and the because the value of the rupee has appreciated in comparison to the dollar the net assets of the subsidiary reported in the other principal currency will be higher.