Question - Running Treadmills Inc. is a specialty treadmill manufacturer that includes a 24-month warranty on all treadmills that it sells. Running Treadmills sells the Extreme Climber for $45,000. The fair value of the component parts is estimated to be $40,000 for the treadmill and $10,000 for the warranty. Running Treadmills 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 December 1. What is the total revenue reported by Running Treadmills in the month of December for this sale?
a) $36,000
b) $36,375
c) $45,000
d) $50,000