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 $525, a price that represents a 30% discount from the regular Probook price of $750. It is expected that 20% of the discount coupons will be utilized. A coupon to purchase a one-year extended warranty for $40. Customers can buy the extended warranty for $80 at other times if they do not use the $40 coupon. Creative estimates that 30% 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. Indicate 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

				Performance	Stand alone price		percentage of total
Item Description				Obligation			stand alone price
Protab tablet				Yes	85,500,000		95%
Limited 6-month warranty				No
option to purchase a probook				Yes	4,500,000		5%
option to purchase extended warranty				No
total stand alone price					90,000,000		100%
				percentage of total		*	Total Transaction		=	Allocated
Item Description				stand alone price			price			contract price
Protab tablet				95%		*	87500000		=	83,125,000
Limited 6-month warranty
option to purchase a probook				5%		*	87500000		=	4,375,000
option to purchase extended warranty
Total contract price										87,500,000
Requirred 3
		TR	General Journal				Debit	Credit
		1	Cash				87500000
			Sales revenue					83,125,000
			Deferred revenue-discount option					4,375,000