Creative Computing sells a tablet computer called the Protab. The $620 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 $350, a price that represents a 30% discount from the regular Probook price of $500. It is expected that 20% of the discount coupons will be utilized.
- A coupon to purchase a one-year extended warranty for $40. Customers can buy the extended warranty for $65 at other times if they do not use the $40 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 $600.
1. & 2. Indicate below whether each item is a separate performance obligation and allocate the transaction price of 120,000 Protab Packages to the separate performance obligations in the contract.
3. Prepare a journal entry to record sales of 120,000 Protab Packages (ignore any sales of extended warranties).