Question

Sandy is an executive at Yummy Yogurt. Because she loves the yogurt so much, in the current year she decides to buy a yogurt machine from Yummy for $9,300. The machine cost the company $9,000 (the wholesale price), and it has a fair market value of $12,500 (price at which sold at retail). Only executives are permitted to buy yogurt machines at a discount. What is Sandy's adjusted basis for the yogurt machine, and how much must she include in her gross income?

Answer 1

The Sandy's adjusted basis for the yogurt machine is $12,500 and the $3,200 should be included in her gross income

Step-by-step explanation:

The adjusted basis for the yogurt machine is the fair value market. Since only executives can avail the discount so the full amount or we can say the market value should be charged i.e $12,500

And, the amount which is included in the gross income is shown below:

= Fair market value - buying cost

= $12,500 - $9,300

= $3,200