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 must include the parking fee of $600 in her gross income because it is a fringe benefit not provided to other employees. The furniture discount is not included because it is available to all employees.

Step-by-step explanation:

The gross income to be reported by Peggy from the furniture discount and parking fee provided by Tan Furniture Manufacturing Company should include the value of any fringe benefits

that are not equally available to all employees and the amount by which the discounted price she paid for the furniture is less than the fair market value (FMV) of the furniture.

Since all employees have access to the same discount on furniture, the difference between the price paid by Peggy ($9,500) and the company's cost ($9,000) is not included in her gross income because it is available to all.

However, the parking fee ($600), which is paid only for Peggy and not offered to other employees, is considered a fringe benefit that must be included in her gross income.

Therefore, Peggy's gross income from the above is $600, which is option b.