Costco 2004 Annual Report Download - page 39

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Note 1—Summary of Significant Accounting Policies (Continued)
Interest Income and Other
Interest income and other includes:
Fiscal Year Ended
August 29,
2004
August 31,
2003
September 1,
2002
Interest income ......................................... $31,537 $21,200 $16,005
Minority interest/earnings of affiliates and other ............... 20,090 17,325 19,740
Total ............................................. $51,627 $38,525 $35,745
The Company recently determined that its joint venture Costco Mexico had incorrectly reported to the
Company the amount of deferred taxes recorded by Costco Mexico under SFAS No. 109, “Accounting for
Income Taxes.” As a result, the Company overstated its share in the equity in earnings of Costco Mexico
(reported in interest income and other) in fiscal years 2004, 2003 and 2002 by approximately $1,000, $1,000 and
$6,000, respectively – representing less than 1% of the Company’s income before income taxes in each of these
years. The cumulative balance sheet effect (reflected in other assets), over the past 12 fiscal years, has been to
overstate the Company’s investment in Costco Mexico by approximately $24,000, or less than .16% of total
assets at fiscal 2004 year end. The Company believes that the incorrect reporting of deferred taxes of Costco
Mexico has not materially impacted its consolidated results of operations, financial position or cash flows.
Accordingly, these amounts have not been adjusted in the accompanying consolidated financial statements.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income
Taxes.” That standard requires companies to account for deferred income taxes using the asset and liability
method.
Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributed to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and tax credits and loss carry-forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to
be realized.
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