**This assignment should be done for Costco VII. Report for CEO At the most recent strategic planning meeting, the board of directors of your company has voted to issue additional stock to raise...

I. Stockholder’s Equity
A. Initial Financial Start
Costco was co-founded by Jeffrey Brotman and Jim Sinegal in 1983.At the start of the business, the initial funds were brought in by the co-founders who used their own funds and used their credit cards. Then they both raised $7.5 million through their own funds, friends and acquaintances and opened three warehouses. After that the company took help of merchant bankers to raise money for the business. (CNN, 2009).
B. Comparison of Equity with industry average
    Equity
    $ million
    Common stock $0.01 par value
    4
    Additional paid in capital
    6107
    Accumulated other comprehensive losses
    (1199)
    Retained Earnings
    7,887
    Total Equity of Costco Stockholder’s
    12,799
    NCI
    304
    Total Equity
    13,103
The long term debt of the company excluding the current portion is $6487m. Hence, we can see that the company is financed more through Equity than Debt. The Debt-Equity ratio of the company was 0.49 whereas the industry average was 0.61 (CSIMarket, 2019). The return on Equity at 25.03% is almost same as 25.53% industry average. (Zacks, 2019). Thus, the face value of the Equity stock is negligible but the additional paid up capital and retained earnings of the company have resulted in increased valuation of Equity stock of the company.
C. Dividend policy
In 2018 declared dividends valuing $939 million and repurchased shares worth $322 million. The company declared cash dividend of $2.14 in 2018 as compared to $8.90 in 2017 in which special cash dividend of $7 was included. The company had a quarterly dividend payment policy of $0.50 which was increased to $0.57 in April 2018. Hence, the company increased its dividend payouts constantly. The dividend yield of the company is 1.01% as compared to 0.99% industry average which indicates high dividend payout policy of the company. (Zacks, 2019). Thus it can be inferred that there has been a constant increase in stock prices.
II. Revenue Recognition
A. IAS-18
Revenue is recognized if there would be inflow of economic resources to the seller, the ownership of the goods is transferred to the buyer and the amount can be measured reliably. Also as per IAS-18, revenues of different nature like sales of goods, rendering of services, interest, commissions, royalties or dividends need to be disclosed separately. (IASB, 2018). The company has classified it different revenues and disclosed them separately and have recognized revenue only for which performance obligation has been completed. Net Sales are recorded at sale less sales return and shipping fees. Thus, the company accounts for the revenue as per IAS 18 and also accounts for sales return as per the matching principle of accounting.
B. Company Revenue
Costco generates revenues from sale of goods and through membership fees earned from individuals and other businesses
    Revenue
    2018
    2017
    Increase/Decrease %
    Net Sales
    138,434
    126,172
    10%
    Membership fess
     3,142
    2,853
    10%
    Total
    141,576
    129,025
    10%
The net sales increased due to increase in sales, also due to introduction of new warehouses and also due to impact of gasoline price increase. The increase in membership fees is primarily due to annual increment and new signups at company’s warehouses.
C. Unearned Revenue Accounts
When the company receives payments from customers before the goods are transferred or services are performed, it records the revenue as deferred sales, which is shown in other current liabilities appearing in the consolidated Balance sheet. The membership revenues which are unearned are shown in deferred membership fees appearing in current liabilities.
III. INCOME TAXES:
A. Elimination of Corporate Tax:
If the Congress would have voted to totally eliminate corporate taxes then that will be a beneficial situation for the chosen company, Costco. Elimination of the corporate tax from the income statement of the company will improve the profit of the company (Fehr et al., 2013). So, eliminating the corporate tax will not only improve financial benefit for the company but will result in economic benefit of the society as a whole.
B. Tax Rate:
It is clearly mentioned in the annual report of the company, the income tax rate for the company was 35% previously but due to the recent changes in the US federal laws, the rate has changed to 21%. So, currently the applied income tax rate on the company is 21%. So, if the company will have an increase in income of $2,000,000, then the company will have to pay extra taxes. So, at the rate of 21% the additional tax to be paid will be $420,000.
C. Effect on Balance Sheet and Income Statement:
The effects of decrease in tax rate on the income statement will be increase in revenue, increase in provision for corporate tax and increase in total attributable profit. If there is increase in income then profit will increase so the owner’s equity or the shareholder’s equity will increase. If the income is generated from sales on credit then accounts receivable will increase and if the income is received against cash then cash will increase. Eventually when the amount will be received then accounts receivable will decrease and cash will increase.
D. Foreign Taxes:
As mentioned in the annual report of the company, in 2018 the company paid $1260 million as the foreign tax. It has been further mentioned that $36 million of foreign tax credit was used from 2017. But for 2018, there is no current foreign tax credit. The total revenue of the company is $141,576. The revenue from United States operation is $ $102,286, revenue from Canada operation is $ $ 20,689 and revenue from other international operation is $ $102,286. So, the revenue generated from United States is 72.25%.
IV. LEASES
A. Operating and capital lease
Capital lease is the lease in which lessee is the owner of the leased asset whereas operating lease is the one in which lessor is the owner of the asset. In capital lease fixed assets and depreciation expense is recorded in the balance sheet and income statement respectively but in operating lease there is no such case. In operating lease, lease expense is recorded in income statement but in capital lease it is not so. In operating assets all payments will appear in the operating activities under statement of cash flow whereas in capital lease principal portion of the lease appears in the financing activities (Bragg S. 2018).
B. Particular of the lease:
The total rental expense is $265 for the year 2018. Gross asset recorded under the capital lease were $427 in year 2018 and these assets are recorded at net of accumulated amortization of $94. Under non cancellable operating lease having term of at least one year and capital lease is discussed below:
C. Impact of the lease:
The company has recognized rental expense $265, $268, $250 million respectively in year 2018, 2017 and 2016 respectively. The sub-lease income was not significant so it has not been...