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 $150, a price that represents a 50% discount from the regular Probook price of $300. It is expected that 20% 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 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).

Answer 1

$ 740 sales price includes
1. one protab at a standalone price of $ 720	2. 6 months limited warranty	3.Coupon to purchase ebook reader for $ 150 ( 50 % discount ) 20 % to be utilised	4.Coupon to purchase 1 year extended warranty $ 70. Regular price of $ 70. 40 % to be utilised
Part 1 and 2
Item description	Performance obligation	Stand alone price	% of total Stand alone price
Protab tablet	yes	740	46%
6 months limited warranty	no
Option to purchase ebook	yes	150	9%
Option to purchase extended warranty	no	720	45%
		1610	100%
Item description	% of total Stand alone price *	Total Transaction Price =	Allocated Contract price
Protab tablet	46%	740	340
6 months limited warranty		740
Option to purchase ebook	9%	740	67
Option to purchase extended warranty	45%	740	333
	100%		740
Part 3
Cash	74000000
Deferred revenue discount option		2000000
Option to purchase ebook		72000000