Question

Vroom Vacuums sells the Tomado 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 Customers pay 20% less for the extended warranty if they buy it at the same time they buy a Tornado. 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 descriptions of 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 One year quality assurance warranty Option to purchase the three-year extended warranty Purchase of vacuum cleaner

Answer 1

There are two (2) performance obligations in the implied contract: delivery of vacuum cleaner & one-year quality assurance warranty.

The delivery of vacuum cleaner is independent of quality assurance warranty. The assurance of warranty is a distinct service performed and can easily identifiable. Such obligation is in the years to come when the product is not upto quality and defers from the delivery performance.

Hence, Number of performance obligations in the contract = 2

The two best descriptions would be:

1. Delivery of vacuum cleaner
2. One year quality assurance warranty.