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 $600, a price that represents a 25% discount from the regular Probook price of $800. It is expected that 20% of the discount coupons will be utilized.
-A coupon to purchase a one-year extended warranty for $60. Customers can buy the extended warranty for $85 at other times if they do not use the $60 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 $760.
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.
|Item Description||Performance Obligation?||Stand Alone Price||Percentage of Total Stand Alone Price|
|Limited 6-month warranty||$0||0|
|Option to purchase a Probook||0|
|Option to purchase extended warranty||0|
|Total stand alone price||$0||0.00%|
|Item Description||Percentage of Total Stand Alone Price||*||Total Transaction Price||=||Allocated Contract Price|
|Limited 6-month warranty|
|Option to purchase a Probook|
|Option to purchase extended warranty|
|Total contract price||$0|
3. Prepare a Journal entry to record sales of 90,000 Protab Packages (ignore any sales of extended warranties).
Journal entry is the first step of the accounting cycle. Journal entry refers to a short recording of all financial transactions in chronological order in the accounting books.
Answer and Explanation: 1
1 & 2.
|Item||Performance obligation||Stand alone price||Percentage of stand alone price|
|Limited 6 month warranty||No||0||0%|
See full answer below.
Learn more about this topic:
fromChapter 3 / Lesson 10
Discover the meaning of a journal entry and a trial balance, types of journal entries, how a general ledger differs from a trial balance, and some examples.