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 $140, a price that represents a 50% discount from the regular Probook price of $280. 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 $50 at other times as well. 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. 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 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).

Answer 1

				Performance	Stand alone price		percentage of total
Item Description				Obligation			stand alone price
Protab tablet				Yes	80,640,000		96%
Limited 6-month warranty				No
option to purchase a probook				Yes	3,360,000		4%
option to purchase extended warranty				No
total stand alone price					84,000,000		100%
				percentage of total		*	Total Transaction		=	Allocated
Item Description				stand alone price			price			contract price
Protab tablet				96%		*	82560000		=	79,257,600
Limited 6-month warranty
option to purchase a probook				4%		*	82560000		=	3,302,400
option to purchase extended warranty
Total contract price										82,560,000
Requirred 3
		TR	General Journal				Debit	Credit
		1	Cash				82560000
			Sales revenue					79,257,600
			Deferred revenue-discount option					3,302,400