Creative Computing sells a tablet computer called the Protab. The $875 sales pri

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 $180, a price that represents a 50% discount from the regular Probook price of $360. It is expected that 25% 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 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 $855. 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).

Explanation / Answer

Sales Price $875 One Protab computer 6 month limited warranty Coupon to purchase Creative Probook for $180 50% discount 25% of the discount coupons will be utilised Coupon to purchase one year warranty for $70 No discount 45% of customers will purchase the warranty Alone $855 Performance Obligation Stand-alone selling price of the performance obligation Percentage of the sum of the stand-alone selling prices of the performance obligations Allocation of total transaction price to each performance obligation Protab Tablet 76950000 95.00% 74812500 Option To purchase Probook 4050000 5.00% 3937500 Option to purchase extended warranty 0 0 Total 81000000 100.00% 78750000 * 855*90000 ** 180*90000*25% *** 76950000/81000000 **** 4050000/81000000 ***** (875*90000)*95% Journal Entry to record the sale Cash 78750000 To Sales Revenue 74812500 To Deferred revenue-discount option 3937500

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