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Running Treadmills Inc

Accounting

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Running Treadmills Inc. (RTI) is a treadmill manufacturer that sells the Extreme Climber for $4,500, which includes a 24-month warranty. While not widely advertised, RTI's customers can purchase the treadmill without the warranty for $4,000. RTI also offers the warranty on a stand-alone basis to its customers and those who purchased the treadmill at non-RTI outlets on a stand-alone basis for $1,000.

RTI follows IFRS and allocates revenues to the component parts using the relative fair value method. Its policy is to recognize revenue from the sale of warranties on a straight-line basis over the life of the warranty.

Assume that an Extreme Climber is sold on January 1, 20X8, for $4,500. RTI's year end is December 31. What is the total revenue reported by Running Treadmills in the month of January for this sale?

a) $3,600

b) $3,638

c) $4,050

d) $4,500