Question

 Vroom Vacuums sells the Tornado vacuum cleaner. Each Tornado has a one-year warranty that covers any product defects. When customers purchase a Tornado, they also have the option to purchase an extended three-year warranty that covers any breakage or maintenance. The extended warranty sells for the same amount regardless of whether it is purchased at the same time as the Tornado or at some other time.

 How many performance obligations exist in the implied contract for the purchase of a vacuum cleaner?

 Number of performance obligations in the contract = _______ 

 Identify the best description of each performance obligation from the following list. 

•  Delivery of vacuum cleaner

•  The one-year quality-assurance warranty

•  The option to purchase the three-year extended warranty

•  Purchase of vacuum cleaner

Answer 1

Number of performance obligations in the contract - Two

First performance obligation in the contract is delivery of the vacuum cleaner with one year warranty and second one is extended three year warranty to cover breakage or maintenance. Since the extended three year warranty can be purchased at the same time as Tornado or later at same price it is also a separate performance obligation. Hence there total 2 performance obligation.

part b)

Delivery of Vacuum Cleaner

The option to purchase the three-year extended warranty