Question

Problem 6-2 (Algo) Performance obligations; warranties; option (L06-2, 6-4, 6-5) Creative Computing sells a tablet computer called the Protab. The 5970 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 $250, a price that represents a 50% discount from the regular Probook price of $500. It is expected that 20% of the discount coupons will be utilized • A coupon to purchase a one year extended warranty for $60. Customers can buy the extended warranty for $60 at other times as well Creative estimates that 30% 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 $950. 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 80,000 Protab Packages to the separate performance obligations in the contract. 3. Prepare a journal entry to record sales of 80,000 Protab Packages [ignore any sales of extended warranties). X Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1 and 2 Req3 Indicated below whether each item is a separate performance obligation and allocate the transaction price of 80,000 Protab Packages to the separate performance obligations in the contract. Performance Stand Alone Price Percentage of Total Stand Alone Price

Answer 1

Req 1) Performance Obligation? Yes No Standalone price $ 76,000,000 Percentage of Total Stand Alone price 95.00% Item Description Protab computer Limited 6-month warranty Option to purchase a Probook Option to purchase extended warranty Total Standalone price Yes 4,000,000 5.00% No $ 80,000,000 Working notes Calculation of standalone price Protab packages sold Standalone price of protab computer Total Standalone price of protab sold (80,000 * $ 950) $ $ 80,000 950 76,000,000 Protab package sold Discounted price of probook % of coupon utilized Standalone price of probook (80,000 * $ 250 x 20%) 80,000 250 20% 4,000,000 $ $ Calculation of Percentage of total standalone price Total Standalone price % of Protab table (76,000,000 / 80,000,000) % of Probook (4,000,000 / 80,000,000) 80,000,000 95.00% 5.00%

Req 2) Percentage of Total Stand Alone Total Transaction price x price Allocated Contract price 95.00% * $ 77,600,000 = $ 73,720,000 Item Description Protab computer Limited 6-month warranty Option to purchase a Probook Option to purchase extended warranty Total Contract price 5.00% * $ 77,600,000 = $ 3,880,000 77,600,000 Working Notes Calculation of total transaction price Protab package sold Sale price of protab packages Total Transaction price (80,000 $ 970) 80,000 970 77,600,000 $

Req 3) No Credit Debit 77,600,000 Transaction General Journal 1) Cash Sales revenue Deferred revenue - discount option (to record sale of protab packages) 73,720,000 3,880,000