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2) 2. 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

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