Question

please complete both problems

Brief Exercise 6-8 (Static) Performance obligations; warranties (LO6-5) 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. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answers and double click the box with the question mark to empty the box for a wrong answers. Any boxes left with a question mark will be automatically graded as incorrect.) 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

There are two performance obligations. Delivery of vacuum cleaner and the option to purchase three years extended warranty. If a customer purchases vacuum cleaner, it is inferred to supply/make available the vacuum cleaner to the customer. Therefore, it is a performance obligation.

Quality assurance warranty of one year is not a performance obligation as it is not separate or cannot be independently sell-able. However, extended warranty is different and can be sold separately therefore, it is a performance