Creative Computing sells a tablet computer called the Protab. The $920 sales pri

Question

Creative Computing sells a tablet computer called the Protab. The $920 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 S400, a price that represents a 50% discount from the regular Probook price of $800. It is expected that 25% of the discount coupons will be utilized. A coupon to purchase a one-year extended warranty for $45. Customers can buy the extended warranty for $45 at other times as well. Creative estimates that 30% 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 $900. Customers must pay $80 to purchase the extended warranty if they don't purchase it with the $45 coupon that was included in the Protab Package. Creative estimates that 30% of customers will use the $45 coupon to purchase an extended warranty. Required: 1. & 2. Indicated below whether each item is a separate performance obligation and allocate the transaction price of 90,000 Protab Packages to the separate performance obligations in the contract Performance Obligation? Yes No Percentage of Total Stand Alone Price Item Descrption Stand Alone Price Protab tablet Cimited 6-month warranty Option to purchase a Probook Option to purchase extended warranty 0 Yes Total stand alone price 0.00% g0 Total Stand x Total Transaction Allocated Con item Descrption Protab tablet Limited 6-month warranty Option to purchase a Probook Option to purchase extended Total contract price 30

Explanation / Answer

Answer: 1

Answer:2

Working notes for 1&2:

Answer:3

If sales of extended warranties are ignored, then % of the total stand alone price of the performance obligation would be:

Journal entry:

Cash ($920*90000) Dr. 82800000

To sales revenue (82800000*90%)............74520000

To deferred revenue - discount option........8280000

Performance obligation Stand alone selling price of the performance obligation % of the sum of the stand alone selling prices of the performance obligations Protab tablet 81000000 89.06% Option to purchase probook 9000000 9.90% Option to purchase extended warranty 945000 1.04% Total 90945000 100.00%

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