Question

Creative Computing sells a tablet computer called the Protab. They expect to sell 100,000 Protab Packages during the year. 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 coupones will be utilized A coupon to purchase a one-year extended warranty for $50. Customers can buy the extended warranty for $50 at other times as well. 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 How many performance obligations are included in a Protab Package? Explain your answer Allocate the transaction price of 100,000 Protab Packages to each performance obligation. Provide supporting calculations and/or explanation:s Prepare the journal entry to record the sale of 100,000 Protab Packages (ignore any sales of extended warranties) c.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Part a
There are two performance obligation:
Protab Computers
Option to purchase Extended warranty
Part b
Item	Perf Obligation	Stand alone Price	% of Total
Protab Computers	Yes	$                  76,000,000	95%	760*100000
Limited 6 Month warranty	No	$                                  -	0%
Option to purchase Probook	Yes	$                    4,000,000	5%	(200*100000)*20%
Option to purchase Extended warranty	No	$                                  -	0%
Total		$                  80,000,000
Item	% of Total	*Total Transaction Price	Allocated Contract Price
Protab Computers	95%	$                  78,000,000	$                  74,100,000
Limited 6 Month warranty	0%	$                  78,000,000	$                                  -
Option to purchase Probook	5%	$                  78,000,000	$                     3,900,000
Option to purchase Extended warranty	0%	$                  78,000,000	$                                  -
Total			$                  78,000,000
Part c
Journal Entry:
Account	Debit	Credit
Cash	$   78,000,000
Sales Revenue		$                  74,100,000
Deferred Revenue-Discount Coupon		$                    3,900,000