Question

Perkins Appliances offers a contract in which customers receive the following:

1)A new Perkins Pro washing machine,
2)a warranty that protects against product defects for the first six months of use,
3)an option to purchase a Perkins Pro dryer for a 30% discount (Perkins typically discounts that brand of dryer 10%), and
4)a coupon to purchase an extended warranty for $150 (extended warranties regularly sell for $150).
How many performance obligations are included in the contract?
a) 4
b) 3
c) 2
d) 1

Answer 1

The contract from Perkins Appliances includes 1 performance obligation, which is the sale of the Perkins Pro washing machine. The included warranty and options for additional purchases are promotions and do not constitute separate performance obligations.

Step-by-step explanation:

When considering the performance obligations in the contract from Perkins Appliances, it's important to understand what constitutes a distinct good or service. Here are the four elements offered:

• A new Perkins Pro washing machine
• A warranty that protects against product defects for the first six months
• An option to purchase a Perkins Pro dryer for a 30% discount
• A coupon to purchase an extended warranty for $150

The warranty that protects against product defects is typically considered part of the purchase of the washing machine; therefore, it does not count as a separate performance obligation. The option to purchase a dryer at a discount and the coupon for an extended warranty are both incentives offered with the purchase and are typically not considered distinct performance obligations as the purchase of these additional products is not guaranteed. As a result, there is only 1 performance obligation in this contract, which is the sale of the washing machine.