Question

Creative Computing sells a tablet computer called the Protab. The $860 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 $675, a price that represents a 25% discount from the regular Probook price of $900. It is expected that 25% of the discount coupons will be utilized.
• A coupon to purchase a one-year extended warranty for $50. Customers can buy the extended warranty for $80 at other times if they do not use the $50 coupon. 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 $840.

Required:
1. & 2. Indicate below whether each item is a separate performance obligation and allocate the transaction price of 96,000 Protab Packages to the separate performance obligations in the contract.
3. Prepare a journal entry to record sales of 96,000 Protab Packages (ignore any sales of extended warranties).

Answer 1

1. & 2. Indicate below whether each item is a separate performance obligation and allocate the transaction price of 96,000 Protab Packages to the separate performance obligations in the contract.

3. Prepare a journal entry to record sales of 96,000 Protab Packages (ignore any sales of extended warranties).