Question

Creative Computing sells a tablet computer called the Protab. The $830 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 $360, a price that represents a 50% discount from the regular Probook price of $720. It is expected that 25% of the discount coupons will be utilized.
• A coupon to purchase a one-year extended warranty for $55. Customers can buy the extended warranty for $55 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 $810.

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 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).

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.

part 1 & 2

Item Description Performance Obligation? Stand Alone Price Percentage of Total Stand Alone Price Protab computers Yes 0 Limited 6-month warranty No 0 Option to purchase a Probook Yes 0 Option to purchase extended warranty Yes 0 Total stand alone price $0 0% 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 $0

Prepare a journal entry to record sales of 90,000 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.)

part 3

No	Transaction	General Journal	Debit	Credit
1	1	Accounts receivable

Answer 1

Ans Part 1&2)

Item Description	Performance Obligation?		Stand Alone Price		Percentage of Total Stand Alone Price
Protab computers	Yes		810.00		51.10
Limited 6-month warranty	No		0		-
Option to purchase a Probook	Yes		720.00		45.43
Option to purchase extended warranty	Yes		55.00		3.47
Total stand alone price			1,585.00		100.00
Item Description	Percentage of Total Stand Alone Price	×	Total Transaction Price	=	Allocated Contract Price
Protab computers	51.10		72900000		3,72,54,889.59
Limited 6-month warranty	-		0		-
Option to purchase a Probook	45.43		8100000		36,79,495.27
Option to purchase extended warranty	3.47		1980000		68,706.62
Total contract price					4,10,03,091.48

Part 3

The journal entry is as under: -

No	Transaction	General Journal	Debit	Credit
1	1	Bank A/c     Dr. Protab - 90000 X 810 = 7,29,00,000 Limited Warranty - 90000 X 0 = 0 Coupon to buy e-book reader - 90000 X 360 X 0.25 = 81,00,000 Extended warranty - 90000 X 55 X 0.40 = 19,80,000            To Sundry Debtors A/c. (Being Protabs sold for cash during the period)	8,29,80,000	8,29,80,000