Help Save i Problem 5-2 Performance obligations; warranties; option [LO5-2, 5-4,

Question

Help Save i Problem 5-2 Performance obligations; warranties; option [LO5-2, 5-4, 5-5 Creative Computing sells a tablet computer called the Protab. The $970 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 $250, a price that represents a 50% discount from the regular Probook price of $500. It is expected that 20% of the discount coupons will be utilized A coupon to purchase a one-year extended warranty for $60. Customers can buy the extended warranty for $60 at other times as Weil. 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 $950 Required: 1. & 2. Indicated below whether each item is a separate performance obligation and allocate the transaction price of 80,000 Protab Packages to the separate performance obligations in the contract 3. Prepare a journal entry to record sales of 80,000 Protab Packages (ignore any sales of extended warranties) MacBook A 888 ra 3 4

Explanation / Answer

Part 1)

The completed tables are provided as below:

____

____

Part 2)

The journal entry is provided as below:

Item Description Performance Obligation? Stand Alone Price Percentage of Total Stand Alone Price Protab Computers Yes $76,000,000 (80,000*950) 95% (76,000,000/80,000,000*100) Limited-6 Month Warranty No 0 Probook Discount Vouchers Yes $4,000,000 (80,000*250*20%) 5% (4,000,000/80,000,000*100) Option to Purchase a Probook No 0 Total Stand alone Price $80,000,000 100%

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