Question

Creative Computing sells a tablet computer called the Protab. The $920 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 $400, a price that represents a 50% discount from the regular Probook price of $800. It is expected that 25% of the discount coupons will be utilized.

A coupon to purchase a one-year extended warranty for $45. Customers can buy the extended warranty for $45 at other times as well. Creative estimates that 30% 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 $900.

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).

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.

Item Description Performance Obligation? Stand Alone Price Percentage of Total Stand Alone Price Protab computers 0 Limited 6-month warranty 0 Option to purchase a Probook 0 Option to purchase extended warranty 0 Total stand alone price $0 0% Item Description Percentage of Total Stand Alone Price × Total Transaction Price = Allocated Contract Price Protab computers Limited 6-month warranty Option to purchase a Probook Option to purchase extended warranty Total contract price $0

Prepare a journal entry to record sales of 90,000 Protab Packages (ignore any sales of extended warranties). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 1

Answer 1

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Item	Perf Obligation	Stand alone Price	% of Total
Protab Computers	Yes	$                        81,000,000	90%	900*90000
Limited 6 Month warranty	No	$                                          -	0%
Option to purchase Probook	Yes	$                           9,000,000	10%	(400*90000)*25%
Option to purchase Extended warranty	No	$                                          -	0%
Total		$                        90,000,000
Item	% of Total	*Total Transaction Price	Allocated Contract Price
Protab Computers	90%	$                        82,800,000	$                         74,520,000
Limited 6 Month warranty	0%	$                        82,800,000	$                                           -
Option to purchase Probook	10%	$                        82,800,000	$                           8,280,000
Option to purchase Extended warranty	0%	$                        82,800,000	$                                           -
Total			$                         82,800,000
Journal Entry:
Account	Debit	Credit
Cash	$      82,800,000
Sales Revenue		$                        74,520,000
Deferred Revenue-Discount Coupon		$                           8,280,000