Creative Computing sells a tablet computer called the Protab. The $620 sales pri

Question

Creative Computing sells a tablet computer called the Protab. The $620 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 $125, a price that represents a 50% discount from the regular Probook price of $250. 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 $40 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 $600. Required: 1. & 2. Indicated below whether each item is a separate performance obligation and allocate the transaction price of 120,000 Protab Packages to the separate performance obligations in the contract. 3. Prepare a journal entry to record sales of 120,000 Protab Packages (ignore any sales of extended warranties).

Explanation / Answer

72000000

(600*120000)

96%

(72000000/75000000)

3000000

(50%*250*120000*20%)

4%

(3000000/75000000)

74400000

(620*120000)

71424000

(74400000*96%)

74400000

(620*120000)

2976000

(74400000*4%)

Part 3

Item description performance obligation? Stand alone price percentage of total stand alone price Protab computers yes

72000000

(600*120000)

96%

(72000000/75000000)

Limited 6-month warranty no Protab discount vouchers yes

3000000

(50%*250*120000*20%)

4%

(3000000/75000000)

Option to purchase a protab no Total stand alone price 75000000 100%

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