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 $560, a price that represents a 30% 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 $70. Customers can buy the extended warranty for $105 at other times if they do not use the $70 coupon. 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. Required: 1. & 2. Indicate 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 (ig

Answer 1

Req 1 & 2

Item description	Performance obligation?	Stand alone price	Percentage of total stand alone price
protab tablet	Yes	85500000 (950*90000)	92.93% (85500000 /92002500)
limited 6-month warranty	No	0	0.00%
option to purchase a probook	Yes	5400000 (800*30%*90000*25%)	5.87% (5400000 /92002500)
option to purchase extended warranty	Yes	1102500 (105-70)*90000*35%	1.20% (1102500 /92002500)
total stand alone price		92002500	100%

Item description	Percentage of total stand alone price	Total transaction price	Allocated contract price
protab tablet	92.93%	87300000 (970*90000)	81127890 (87300000 *92.93%)
limited 6-month warranty	0.00%	87300000	0
option to purchase a probook	5.87%	87300000	5124510 (87300000 *5.87%)
option to purchase extended warranty	1.20%	87300000	1047600 (87300000 *1.20%)
total contract price			87300000

Req 3

Journal entry

transaction	General journal	debit	Credit
1.	Cash	87300000
	sales revenue		81127890
	deferred revenue - discount option		5124510
	deferred revenue - extended warranty		1047600