The Royal Motor Company Manufactures Automobiles

The Royal Motor Company manufactures automobiles.Employees of the company can buy a new automobile for Royal's cost plus 2%.The automobiles are sold to dealers at cost plus 20%.Generally, employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealer's cost.Officers of Local Dealer are allowed to use a company vehicle (for personal use) at no cost.

A) None of the employees who take advantage of the fringe benefits described above are required to recognize income.
B) Employees of Royal are required to recognize as gross income 18% (20% - 2%) of the cost of the automobile purchased.
C) Employees of Local Dealer are required to recognize as gross income the gross profit Local Dealer loses as a result of the sale to the employees.
D) Local Dealer officers must recognize gross income from the personal use of the company vehicles.
E) None of the above.