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 $180, a price that represents a 50% discount from the regular Probook price of $360. 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 $70 at other times as well. 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.

All Protab sales are made in cash.

Required:

1. & 2.Identify 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 journal entry to record sales of 90,000 Protab Packages (ignore any sales of extended warranties).

Below are the calculations that I have come up with.

Item Description

Performance Obligation

Stand Alone Price

Percentage of Total Stand Alone Price

Protab computers Yes $78,750,000 92%

Limited 6-month warranty No $0

Option to purchase a Probook Yes $4,050,000 5%

Option to purchase extended warranty Yes $2,835,000 3%

Total stand alone price $85,635,000 100%

Item Description

Percentage of Total Stand Alone PriceTotal Transaction Price

=Allocated Contract Price

Protab computers 92%$72,450,000=$66,625,066

Limited 6-month warranty

Option to purchase a Probook 5%$72,450,000=$3,426,432

Option to purchase extended warranty 3%$72,450,000=$2,398,502

Total contract price $72,450,000