Question

Creative Computing sells a tablet computer called the Protab. The $970 sales price of a Protab Package includes the following: One Protab computer. A 6-month limited warranty. This warranty guarantees that Creative will cover any costs that arise due to repairs or replacements associated with defective products for up to six months. A coupon to purchase a Creative Probook e-book reader for $200, a price that represents a 50% discount from the regular Probook price of $400. It is expected that 25% of the discount coupons will be utilized. A coupon to purchase a one-year extended warranty for $70. Customers can buy the extended warranty for $70 at other times as well. Creative estimates that 35% of customers will purchase an extended warranty. Creative does not sell the Protab without the limited warranty, option to purchase a Probook, and the option to purchase an extended warranty, but estimates that if it did so, a Protab alone would sell for $950. All Protab sales are made in cash. Required: 1. & 2. Indicated below whether each item is a separate performance obligation and allocate the transaction price of 90,000 Protab Packages to the separate performance obligations in the contract. 3. Prepare a journal entry to record sales of 90,000 Protab Packages (ignore any sales of extended warranties).

Answer 1

	1 & 2
	No of pro tab Packages	90000
	SP Pro tab alone	950
	Sales Pro tab alone	$950*90000	$85,500,000
	Creative Pro book	$200*90000*25%	$4,500,000
			$90,000,000
	Percentage of Pro tab	$85500000/$90000000	95%
	Percentage of Creative Pro book	$4500000/$90000000	5%
	Total Transaction Price	$970*90000	$87,300,000
	Allocation to Pro tab	$87300000*95%	$82,935,000
	Allocation to Pro book	$87300000*5%	$4,365,000
	Performance Obligation	Standalone selling price of performance obligation	Percentage of the sum of the standalone selling prices of the performance obligation	Allocation of Total transaction price to each performance obligation
	Pro-tab tablet	$85,500,000	95%	$82,935,000
	Creative Pro-book	$4,500,000	5%	$4,365,000
	Total	$90,000,000	100%	$87,300,000
3	Journal Entry
	General Journal	Debit-$	Credit-$
	cash	873000000
	Sales Revenue		82935000
	Deferred Revenue -Discount vouchers		4365000
	to record the allocation of transaction price to performance obligation