Problem 5-3 Performance obligations; warranties; option [LOS-2, 5-4,5-5 Creative
ID: 2546242 • Letter: P
Question
Problem 5-3 Performance obligations; warranties; option [LOS-2, 5-4,5-5 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 S240, a price that represents a 40% discount from the regular Probook price of $400 It is expected that 25% of the discount coupons wil be utilized. A coupon to purchase a one-year extended warranty for $50. Customers can buy the extended warranty for $75 at other times if they do not use the SSO coupon Creative estimates that 40% 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. Indicate below whether each item is a separate performance obligation and allocate the transaction price of 95,000 Protab Packages to the separate performance obligations in the contract 3. Prepare a jounal entry to record sales of 95.000 Protab Packages (ignore any sales of extended warranties) MacBook Air 3 5Explanation / Answer
1 Item Performance Obligation Standalone Price % of total standalone price Protab tablet Yes 72200000 91.57% (760*95000) Limited 6 month warranty No - - Option to purchase probook No 5700000 7.23% (240*95000*25%) Option to purchase extended warranty Yes 950000 1.20% (75-50)*95000*40% Total 78850000 1 Item % of total standalone price Total Transaction Price Alloicated Contract Price Protab tablet 91.57% 74100000 67853370 (780*95000) Limited 6 month warranty - Option to purchase probook 7.23% 74100000 5357430 Option to purchase extended warranty 1.20% 74100000 889200 2 Transaction General Journal Debit Credit 1 Cash (780*95000) 74100000 Deferred revenue discount option 1900000 Sales revenue (760*95000) 72200000