Name: Date: Class:

Problem of the Week 2 - WARRANTIES

Instructions:
Read the POW and work in the space provided. Remember to show your work. If you need extra s
Do your best! Partial answers are better than no answers!
Problem 2 Performance obligations; warranties; option [LO5-2, 5-4, 5-5]
Creative Computing sells a tablet computer called the Protab. The $830 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 $360, a price that
represents a 50% discount from the regular Probook price of $720. It is expected that
25% of the discount coupons will be utilized.
 A coupon to purchase a one-year extended warranty for $55. Customers can buy the
extended warranty for $55 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 $810.
All Protab sales are made in cash.

Required:
1. & 2. Indicated 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 (ignore any sales of
extended warranties).
Name: Date: Class:

Final Answer Box: Put your final answer here. Describe or explain it in one complete sentence. (Do not just writ

Indicated 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 Percentage of Total

Item Description Stand Alone Price
Obligation? Stand-Alone Price

Percentage of
Total Transaction Allocated Contract
Item Description Total Stand- × =
Price Price
Alone Price

Prepare a journal entry to record sales of 90,000 Protab Packages (ignore any sales of extended
warranties). (If no entry is required for a transaction/event, select "No journal entry required" in
the first account field.)
No Transaction General Journal Debit Credit