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. 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 per year at a discount. Levingston's average gross profit percentage is 15%. This year Kevin purchased a 530 model and a new M3.  What amount must Kevin include in income?

Quizplus · Accepted Answer

Kevin must include $2,500 into his gross income. This is because the $13,000 ($70,000 - $57,000) discount received on the M3 is larger than the qualified employee discount of $10,500 (sales price of $70,000 times the average gross profit percentage of 15%). 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%).

Kevin Is the Financial Manager of Levingston BMW