Question

Peggy is an executive for the Tan Furniture Manufacturing Company. Peggy purchased furniture from the company for $9,500, the price Tan ordinarily would charge a wholesaler for the same items. The retail price of the furniture was $12,500, and Tan's cost was $9,000. The company also paid for Peggy's parking space in a garage near the office. The parking fee was $600 for the year. All employees are allowed to buy furniture at a discounted price comparable to that charged to Peggy. However, the company does not pay other employees' parking fees. Peggy's gross income from the above is:

a. $0.
b. $600.
c. $3,500.
d. $4,100.
e. None of these.

Answer 1

Peggy's gross income from the benefits provided by Tan Furniture Manufacturing Company is $600 for the year since the parking fee paid by the employer is considered taxable income, while the discounted furniture is not, as it is a benefit available to all employees. The correct option is b.

Step-by-step explanation:

The question asks about calculating Peggy's gross income based on the discounted purchase of furniture from her employer, Tan Furniture Manufacturing Company, and the company-paid parking fee.

First, since all employees can buy furniture at the discounted price Peggy got, there is no income to report from the purchase. However, her employer paying for her parking spot is a fringe benefit not offered to all employees, thus it is considered taxable income.

Therefore, Peggy's gross income from these benefits is the value of the parking fee paid by the employer, which is $600 for the year.

The discounted furniture is not included in her gross income since it’s a discount available to all employees and within the IRS guidelines for employee discounts. Peggy's gross income related to these transactions is option b. $600.