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Creative Computing sells a tablet computer called the Protab. The $875 sales price of a Protab...

Question:

Creative Computing sells a tablet computer called the Protab. The $875 sales price of a Protab Package includes the following:

a) One Protab computer.

b) 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.

c) A coupon to purchase a Creative Probook e-book reader for $225, a price that represents a 50% discount from the regular Probook price of $450. It is expected that 20% of the discount coupons will be utilized.

d) A coupon to purchase a one-year extended warranty for $40. Customers can buy the extended warranty for $40 at other times as well. Creative estimates that 30% of customers will purchase an extended warranty.

e) 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. Indicate below whether each item is a separate performance obligation and allocate the transaction price of 100,000 Protab Packages to the separate performance obligations in the contract.

2. Calculate the standalone price for these variables:

a) Protab computers

b) Limited 6-month warranty

c) Probook discount vouchers

d) Option to purchase a Probook.

Separate Performance Obligations:

In order to accurately record the sale of a package of products, the separate performance obligations must be determined and the revenue from the sale allocated to each separate performance obligation.

Answer and Explanation: 1

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An item is a separate performance obligation if is not be readily available, and it is independent product from which the customer will benefit on...

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What is Revenue Recognition? - Principles, Process & Examples

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Chapter 7 / Lesson 2
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Revenue recognition states that revenue is recorded when it is realized, or realizable and earned, as opposed to received. Learn about the principles and process of revenue recognition with examples of recognition criteria before exploring some exceptions to the rule.


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