Question

Creative Computing sells a tablet computer called the Protab. The $860 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 $675, a price that represents a 25% discount from the regular Probook price of $900. It is expected that 25% of the discount coupons will be utilized. • A coupon to purchase a one-year extended warranty for $50. Customers can buy the extended warranty for $80 at other times if they do not use the $50 coupon, Creative estimates that 40% 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 $840. Required: 1. & 2. Indicate below whether each item is a separate performance obligation and allocate the transaction price of 96,000 Protab Packages to the separate performance obligations in the contract. 3. Prepare a journal entry to record sales of 96,000 Protab Packages (ignore any sales of extended warranties). Complete this question by entering your answers in the tabs below. Req 1 and 2 Req3 Indicate below whether each item is a separate performance obligation and allocate the transaction price of 96,000 Protab Packages to the separate performance obligations in the contract. Performance Obligation? Percentage of Total Stand Alone Price Yes 83.27% Item Descrption Protab tablet Limited 6-month warranty Option to purchase a Probook Option to purchase extended warranty Tot and alone price Stand Alone Price $ 80,640,000 $ 0 $ 16,200,000 No Yes No s 16.73% 0.00% 100.00% $ 96,840,000

Answer 1

Req 1) Percentage of Total Stand Alone price Performance Obligation? Standalone price Item Description Protab computer Limited 6-month warranty Option to purchase a Probook 83.27% Yes 80,640,000 No 16.73% Yes 16,200,000 Option to purchase extended warranty No Total Standalone price $ 96,840,000 Working notes Calculation of standalone price Protab packages sold Standalone price of protab computer Total Standalone price of protab sold (96,000 x $ 840) 96,000 $ 840 80,640,000 Protab package sold Discounted price of probook % of coupon utilized Standalone price of probook (96,000 x$675 x 25%) 96,000 $ 675 25% $ 16,200,000 Calculation of Percentage of total standalone price Total Standalone price % of Protab table (80,640,000/96,840,000) % of Probook (16,200,000/96,840,000) $ 96,840,000 83.27% 16.73%

Req 2) Percentage of Total Stand Alone price Total Transaction xprice 83.27% x $ Allocated Contract price Item Description Protab computer Limited 6-month warranty 82,560,000 $ 68,747,712 16.73% x $ Option to purchase a Probook Option to purchase extended warranty 82,560,000 13,812,288 Total Contract price 82,560,000 Working Notes Calculation of total transaction price Protab package sold Sale price of protab packages Total Transaction price (96,000 x $ 860) 96,000 $ 860 $ 82,560,000 X

Req 3) Transaction General Journal Credit Debit No Cash 1) 1) 82,560,000 Sales revenue 68,747,712 13,812,288 Deferred revenue discount option (to record sale of protab packages)