Question

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 $375, a price that represents a 40% discount from the regular Probook price of $625. It is expected that 20% of the discount coupons will be utilized. A coupon to purchase a one-year extended warranty for $50. Customers can buy the extended warranty for $85 at other times if they do not use the $50 coupon. Creative estimates that 35% 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 $950.
Required:
Prepare a journal entry to record sales of 100,000 Protab Packages.

Answer 1

Answer:

the journal entry to record the sale of 100,000 Protab packages:

Dr Cash 97,000,000

    Cr Sales revenue 91,035,000

    Cr Deferred revenue - discount option 4,792,000

    Cr Deferred revenue - extended warranty 1,173,000

Explanation:

some information was missing:

• Each Protab package costs $970

• stand alone selling price of a Protab is $950

stand alone price of Probook coupon = ($625 x 40%) x 20% = $50

stand alone price of extended warranty coupon = ($85 - $50) x 35% = $12.25

item                        stand alone prices  % of package price    allocation of

                                                                                                    transaction $

Protab                          $950                           93.85%                 $910.35

Probook coupon           $50                             4.94%                   $47.92

Ext. warranty coup.       $12.25                          1.21%                     $11.73

total                           $1,012.25                         100%                  $970.00