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 $180, a price that represents a 50% discount from the regular Probook price of $360. 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 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 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

	Sales Price	$875
	One Protab computer
	6 month limited warranty
	Coupon to purchase Creative Probook for $180 50% discount
	25% of the discount coupons will be utilised
	Coupon to purchase one year warranty for $70					No discount
	45% of customers will purchase the warranty
	Alone	$855
	Performance Obligation	Stand-alone selling price of the performance obligation	Percentage of the sum of the stand-alone selling prices of the performance obligations	Allocation of total transaction price to each performance obligation
	Protab Tablet	76950000	95.00%	74812500
	Option To purchase Probook	4050000	5.00%	3937500
	Option to purchase extended warranty	0	0
	Total	81000000	100.00%	78750000
*	855*90000
**	180*90000*25%
***	76950000/81000000
****	4050000/81000000
*****	(875*90000)*95%
	Journal Entry to record the sale
	Cash	78750000
	To Sales Revenue		74812500
	To Deferred revenue-discount option		3937500