Creative Computing sells a tablet computer called the Protab

Creative Computing sells a tablet computer called the Protab. The $780 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 $200, a price that represents a 50% discount from the regular Probook price of $400. It is expected that 20% 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 35% 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 $760. · Required: 1.&2. Indicated below whether each item is a separate performance obligation and allocate the transaction price of 100,000 Protab Packages to the separate performance obligations in the contract. 3. Prepare a journal entry to record sales of 100,000 Protab Packages (ignore any sales of extended warranties)

Solution

Answer 1 & 2. Items Description Stand Alone Price % of Total Stand Alone Price Protab Computers 76000000 95% (100000 Units X $760) (76000000 /81575000) Option to Purchase a Probook 4000000 5% (100000 Units X $200 X 20%) (4000000 /81575000) Option to Purchase Extended Warranty                                                                      -   0.00% (100000 Units X ($45 - $45) X 35%) (1575000/ 81575000) Total Stand Alone Price 80000000 100.00% Performance Obligation : Customer option for additional Goods or Service: No. of Performance Obligation is two: 1. Delivery of Protab Computer. 2. Purchase of Probook. Items Description % of Total Stand Alone Price Total Transaction Price Allocated Contract Price Protab Computers 95.00% 780 741 Option to Purchase a Probook 5.00% 780 39 Option to Purchase Extended Warranty 0.00% 780                                         -   Total Stand Alone Price 100.00% 780 780 Answer 3. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Cash                                                                 78000000 Sales Revenue 74100000 Deferred Revenue Discount Option 3900000