reative Computing sells a tablet computer called the Protab. The $875 sales pric
ID: 2558009 • Letter: R
Question
reative 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 replacenm 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 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 tim . Creative does not sell the Protab without the limited warranty, option to purchase a Probook, and the option to purchase an well, Creative estimates that 45% of customers will purchase an extended warranty. 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 90.000P Packages to the separate performance obligations in the contract. e any sales of extended warranties). abs below. Complete this question by entering your answers in the t Req 1 and 2 Req 3 Indicated below whether each item is a separate performance obligation and allocate the transaction price of 90 Packages to the separate performance obligations in the contract Stand Alone Price Protab computers Limited 6-month warranty Option to purchase a Probook Option to purchase exdended warranty 0% Total stand alone price ???Explanation / Answer
Working Notes:
(1) Stand Alone Price
Protab Computer = $855 x 90,000 = $ 76,950,000
Probook Discount Vouchers = $180 x 90,000 x 25% = $ 4,050,000
Option to Purchase an Extended Warranty = $70 x 90,000 x 45% = $ 2,835,000
Total = $ 83,835,000
(2) Transaction Price:
Protab Computer = $875 x 90,000 = $ 78,750,000
Probook Discount Vouchers = $180 x 90,000 = $ 16,200,000
Option to Purchase an Extended Warranty = $70 x 90,000 = $ 6,300,000
Total Transaction Price = $ 101,250,000
Req 1 & 2
Item Description Performace Obligation Stand Alone Price Percentage of Total Stand Alone Price
Protab Computer Yes $ 76,950,000 95 %
Limited 6 month
warranty No
Option to purchase
a Probook Yes $ 4,050,000 5%
Option to purchase
extended warranty No
Total Stand Alone Price $ 810,00,000 100%
Item Desciption Percentage of Total Stand Alone Price x Total Transaction Price = Allocated Contract Price
Protab Computer 95 % x $ 101,250,000 = $ 96,187,500
Limited 6 month
warranty
Option to purchase
a Probook 5% x $ 101,250,000 = $ 5,062,500
Option to purchase
extended warranty
Total Contract Price $ 101,250,000
Req 3 Cash $ 101,250,000
Sales revenue $ 96,187,500
Deferred revenue - discount option $ 5,062,500
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