Question

Creative Computing sells a tablet computer called the Protab. The $875 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 $225, a price that represents a 50% discount from the regular Probook price of $450. It is expected that 20% of the discount coupons will be utilized.

A coupon to purchase a one-year extended warranty for $60. Customers can buy the extended warranty for $60 at other times as well. Creative estimates that 45% 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 $855.

Required:
1. & 2. Indicated below whether each item is a separate performance obligation and allocate the transaction price of 100,000 Protab Packages to the separate performance obligations in the contract.
3. Prepare a journal entry to record sales of 100,000 Protab Packages (ignore any sales of extended warranties).

Indicated below whether each item is a separate performance obligation and allocate the transaction price of 100,000 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 Limited 6-month warranty Option to purchase a Probook Option to purchase extended warranty Total stand alone price 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 3. Record the sales of 100,000 Protab Packages. Note: Enter debits before credits. Transaction General Journal Debit Credit 1

Answer 1

Answer 1 & 2.
Item Description	Performance Obligation		Stand Alone Price		% of Total Stand Alone price
Protab Tablet	Yes		85,500,000		95.00%
Limited 6-Month Warranty	No		-		0.00%
Option to Purchase a Probook	Yes		4,500,000		5.00%
Option to Purchase Extended Warranty	Yes		-		0.00%
Total Stand Alone Price			90,000,000		100.00%
Item Description	% of Total Stand Alone price	X	Total Transaction Price	=	Allocated Contract Price
Protab Tablet	95.00%	X	87,500,000		83,125,000
Limited 6-Month Warranty	-	X	87,500,000		-
Option to Purchase a Probook	5.00%	X	87,500,000		4,375,000
Option to Purchase Extended Warranty	-	X	87,500,000		-
Total Contract Price	100.00%	X	87,500,000		87,500,000
Stand Alone Price:
Protab Tablet =100,000 Nos X $855 = $85,500,000
Option to Purchase a Probook = 100,000 X $225 X 20% = $4,500,000
Option to Purchase Extended Warranty = 100,000 Nos X $0 x 30% = $0

Answer 3.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Cash	87,500,000
	Sales revenue		83,125,000
	Deferred Revenue - Discount Coupon		4,375,000
	(record the sale of 100,000 Protab)