Question

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehicles per year at a discount. Levingston's average gross profit percentage is 15%. This year Kevin purchased a 530 model and a new M3.

Model	FMV	Dealer cost	Employee Price
530	$63,000	$50,000	$54,000
M3	$70,000	$60,000	$57,000

What amount must Kevin include in income?

Multiple Choice:

a. $0.
b. $2,500.
c. $2,950.
d. $22,000.

Answer 1

Answer- b. $2500.

Explanation-

Kevin must include $2,500 into his gross income.

Qualified Employee Discount = $70,000*15%=$10,500. Discount recieved in M3 is ($70,000 - $57,000) =$13,000.

The discount received on the M3 is larger than the qualified employee discount of $10,500 .

Therefore, the Gross Income= $13,000-10,500= $2,500.

There is no gross income from the purchase of the 530.

Since the $9,000 ($63,000 - $54,000) discount is less than the qualified employee discount of $9,450 ($63,000 times the average gross profit percentage of 15%).

Here, eligible discount = $9,450

And actual discount =$9,000.

Hence, Income in this transaction= 0.

Total amount Kevin include in his Income =$2,500 + 0

=$2,500. answer.