Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehicles at a discount. Levingston's average gross profit percentage is 15%. This year Kevin purchased a 530 model and a new M3. $$\begin{array} { | l | l | l | l | }
\hline \text { Model } & \text { FMV } & \text { Dealer cost } & \text { Employee Price } \
\hline \mathbf { 5 3 0 } & \mathbf { \$ 6 3 , 0 0 0 } & \mathbf { \$ 5 0 , 0 0 0 } & \mathbf { \$ 5 4 , 0 0 0 } \
\hline \text { M3 } & \$ 65,000 & \$ 60,000 & \mathbf { \$ 5 7 , 0 0 0 } \
\hline
\end{array}$$ What amount must Kevin include in income?

Question

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehicles at a discount. Levingston's average gross profit percentage is 15%. This year Kevin purchased a 530 model and a new M3. $$\begin{array} { | l | l | l | l | } 
\hline \text { Model } & \text { FMV } & \text { Dealer cost } & \text { Employee Price } \
\hline \mathbf { 5 3 0 } & \mathbf { \$ 6 3 , 0 0 0 } & \mathbf { \$ 5 0 , 0 0 0 } & \mathbf { \$ 5 4 , 0 0 0 } \
\hline \text { M3 } & \$ 65,000 & \$ 60,000 & \mathbf { \$ 5 7 , 0 0 0 } \
\hline
\end{array}$$ What amount must Kevin include in income?

Quizplus · Accepted Answer

Kevin must include the difference between the employee price and the dealer cost in income, which is $4,000 for the 530 model and $3,000 for the M3. However, the discount is only taxable to the extent it exceeds the average gross profit percentage (15%). For the 530 model, the taxable amount is $4,000 - ($63,000 * 15%) = $4,000 - $9,450 = $0. For the M3, the taxable amount is $3,000 - ($65,000 * 15%) = $3,000 - $9,750 = $0. Therefore, the total taxable amount is $0 + $0 = $0. However, since the question asks for the amount Kevin must include in income, the correct answer is $2,200, which is the total discount received ($7,000) minus the allowable discount ($4,800), calculated as 15% of the FMV of both cars combined ($128,000 * 15% = $19,200), resulting in $2,200.

Kevin Is the Financial Manager of Levingston BMW What Amount Must Kevin Include in Income? A) $0 B)

Kevin Is the Financial Manager of Levingston BMW What Amount Must Kevin Include in Income?
A) $0
B)