Creative Computing sells a tablet computer called the Protab.The $780 sales price of a Protab Package includes thefollowing:
- One Protab computer.
- A 6-month limited warranty. This warranty guarantees thatCreative will cover any costs that arise due to repairs orreplacements associated with defective products for up to sixmonths.
- A coupon to purchase a Creative Probook e-book reader for $420,a price that represents a 30% discount from the regular Probookprice of $600. It is expected that 20% of the discount coupons willbe utilized.
- A coupon to purchase a one-year extended warranty for $45.Customers can buy the extended warranty for $70 at other times ifthey do not use the $45 coupon. Creative estimates that 35% ofcustomers 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 anextended warranty, but estimates that if it did so, a Protab alonewould sell for $760.
Required:
1. & 2. Indicate below whether each item is aseparate performance obligation and allocate the transaction priceof 100,000 Protab Packages to the separate performance obligationsin the contract.
3. Prepare a journal entry to record sales of100,000 Protab Packages (ignore any sales of extendedwarranties).
Complete this question by entering your answers in thetabs below.
Indicate below whether each item is a separate performanceobligation and allocate the transaction price of 100,000 ProtabPackages to the separate performance obligations in thecontract.
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| | Item Descrption | Performance Obligation? | | Stand Alone Price | | Percentage of Total Stand AlonePrice | | Protab tablet | Yes | | $76,000,000 | | 95.00% | | Limited 6-month warranty | No | | | | | | Option to purchase a Probook | Yes | | | | 0.00% | | Option to purchase extendedwarranty | Yes | | | | | | Total stand alone price | | | $80,000,000 | | 100.00% | | | Item Descrption | Percentage of Total Stand AlonePrice | × | Total Transaction Price | = | Allocated Contract Price | | Protab tablet | 95.00% | × | | | | | Limited 6-month warranty | 5.00% | × | Total Transaction Price | | | | Option to purchase a Probook | | | | | | | Option to purchase extendedwarranty | | | | | | | Total contract price | | | | | $0 |
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