Question

Abigail is an executive for Oak Furniture Manufacturing Company. Abigail purchased furniture from the company for $7,000. The price Oak ordinarily charges a wholesaler is $8,500. The retail price of the furniture was $12,000, and Oak's cost was $8,000. The company also paid for Abigail's parking space in a garage near the office. The parking fee was $1,200 for the year. All employees are allowed to buy furniture at a discounted price comparable to that charged to Abigail. However, the company does not pay other employees' parking fees. Abigail's gross income is:

a.$6,200.
b.$5,000.
c.$1,000.
d.$0.
e.$7,000.

Answer 1

Abigail's gross income includes the value of her parking fee, which is $1,200 since the furniture discount is not included because it's available to all employees. The correct answer is $1,200.

Step-by-step explanation:

Abigail's gross income from her transactions with Oak Furniture Manufacturing Company should include the discount she received on the furniture and the value of any additional benefits she received that are not provided to other employees.

However, considering the information given, we need to calculate the discount on the furniture as a fringe benefit, which is the difference between what Abigail paid and the ordinary wholesale price. This is calculated as $8,500 (ordinary wholesale price) - $7,000 (price paid by Abigail) = $1,500. Since all employees are allowed to buy furniture at the discounted price she received, this discount is not included in her gross income.

The parking fee, however, is a different form of compensation because it is not offered to other employees. Therefore, the value of the parking space, $1,200, must be included in Abigail's gross income.

Therefore, the correct answer to Abigail's gross income from these perks is $1,200, which matches option c.