Question

Bradley works for Prestige Motors, an automobile dealership. All employees can buy a car at the company's cost plus 4%. The company does not charge employees the $500 dealer preparation fee that nonemployees must pay. Bradley purchased an automobile for $33,280 ($32,000 + $1,280). The company's cost was $32,000. The price for a nonemployee would have been $35,110 ($34,610 + $500 preparation fee).What is Bradley's gross income, if any, from the purchase of the automobile?

Answer 1

Answer: $400

Explanation:

Even though Bradley did not have to pay the $500 dealer preparation fee, it cannot be completely waved off because it is a service fee.

For service fees, only 20% of their value can be excluded from gross income.

Bradley therefore will have to include the remaining 80% into their gross income.

= 80% * 500

= $400