Question

Creative Computing sells a tablet computer called the Protab. The $740 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 20% of the discount coupons will be utilized.
• A coupon to purchase a one-year extended warranty for $65. Customers can buy the extended warranty for $65 at other times as well. Creative estimates that 40% 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 $720.

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 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

Prepare a journal entry to record sales of 100,000 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

• Record the sales of 100,000 Protab Packages.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 1

Answer 1

				Performance	Stand alone price		percentage of total
Item Description				Obligation			stand alone price
Protab tablet				Yes	72,000,000		90%
Limited 6-month warranty				No
option to purchase a probook				Yes	8,000,000		10%
option to purchase extended warranty				No
total stand alone price					80,000,000		100%
				percentage of total		*	Total Transaction		=	Allocated
Item Description				stand alone price			price			contract price
Protab tablet				90%		*	74000000		=	66,600,000
Limited 6-month warranty
option to purchase a probook				10%		*	74000000		=	7,400,000
option to purchase extended warranty
Total contract price										74,000,000
Requirred 3
		TR	General Journal				Debit	Credit
		1	Cash				74000000
			Sales revenue					66,600,000
			Deferred revenue-discount option					7,400,000