Question

Creative Computing sells a tablet computer called the Protab. The $875 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 $420, a price that represents a 30% discount from the regular Probook price of $600. It is expected that 25% of the discount coupons will be utilized • A coupon to purchase a one-year extended warranty for $70. Customers can buy the extended warranty for $95 at other times if they do not use the $70 coupon. Creative estimates that 45% 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 $855. Required: 1. & 2. Indicate 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. 3. Prepare a journal entry to record sales of 90,000 Protab Packages. Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1 and 2 Reg 3 Indicate 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? Stand Alone Percentage of Total Stand Alone Drine Item Deernntinn

Answer 1

Warranty and Performance Obligation

Warranty and Extended Warranty

In first case a 6 Months limited warranty . Ths warranty guarantee that creative will cover any cost that arise due to repair or replacement associated with defective product , Not dicussed about recovery of labour cost . This obligation is not separated from the product sold . this performance obligation relates to service .

Other one A coupon to purchase E- creative – This is separate performance obligation . it performance depends on Customer exercise this option or not . As per Question, we noticed that it expected that 25% discount coupon will be utilized

Other part also mentioned that a coupon to purchase one year extended warranty and customer can opt for $ 95 instead of $ 70 . Chances to avail this etended benefit by 45%

Creative Computing sells a Table Computer called
Sales price $ 875
A 6 months Limited Warranty
A coupon to purchase a creative Pro Book - E book
reader fo $ 420
Price represents 30% discounted price - Regular Price $ 600
Expect that 25% discount coupon will be utilized
One year extended Warranty $ 70
Customer can extended warranty fror $ 95 - of they do nto opt for $ 70
45% customer will purchase extended Waranty
Protable alone can be sale $ 855
We need to prepare Journal Entries relates to 90000 Protab Package '
Performance Obligation	Standalone Selling price opf the performace Obligation	% of the sum of standalone selling price of the performance obligation	Allocation of Transaction price to performance Obligation
Sale of Product - Without Limited Warranty	7,69,50,000	88%	6,93,24,324
A coupon to purchase a creative Pro Book - E book	94,50,000	11%	86,62,500
Coupon Purchase extended Warranty	10,12,500	1%	9,12,162
Total	8,74,12,500		7,88,98,986
Standalone Selling price
Number of unit		90,000	a
Unit Selling Price ($/ Unit		855	b
Standalone Selling price $=A		7,69,50,000	(a*b)
Standalone Selling price
Number of unit		90,000	a1
As per Question
reader fo $ 420
Price represents 30% discounted price - Regular Price $ 600
Expect that 25% discount coupon will be utilized
Unit Selling Price ($/ Unit		420	b1
Chance to avail this benefit		25%	c1
Standalone Selling price $=B		94,50,000	(a1*b1*c1)
Standalone Selling price
One year extended Warranty $ 70
Customer can extended warranty fror $ 95 - of they do nto opt for $ 70
45% customer will purchase extended Waranty
Number of unit		90,000	a1
Chance to avail this benefit		45%	b1
Price difference $95-$70		25	c1
Standalone Selling price $ =C		1012500	(a1*b1*c1)
Total Sale value 90000 units
As calculated above ( A+B+C)$		8,74,12,500
% wise completion
Sale of Product - Without Limited Warranty	88%	($76950000/$87412500)
Sale of Product - Without Limited Warranty
Sales price $	875	C1
% completion	88%	C2
Selling Unit	90,000	C3
Allocation of Transaction price to performance Obligation	6,93,24,324	(C1*C2*C3)
A coupon to purchase a creative Pro Book - E book
% wise completion	11%	($9450000/$87412500)=C1
Sales price $	875	C2
Selling Unit	90,000	C3
Allocation of Transaction price to performance Obligation	86,62,500
Coupon Purchase extended Warranty
% wise completion	1%	($1012500/$87412500)=C1
Sales price $	875	C2
Selling Unit	90,000
Allocation of Transaction price to performance Obligation	9,12,162

Journal Entry
Details	Debit($)	Credit($)
Cash	7,88,98,986
Sales revenue		6,93,24,324
Deferred revenue - Discount option($8662500+$912612)		95,74,662
( Sale of prototab with performance Obligation