Question

Majestic Vehicle Company manufactures automobiles. Employees of the company can buy a new automobile for Majestic's cost plus 2 percent. The automobiles are sold to dealers at cost plus 20 percent. Generally, employees of Regional Dealer, Inc., are allowed to buy a new automobile from the company at the dealer's cost. Officers of Regional Dealer are allowed to use a company vehicle (for personal use) at no cost. Which of the following statements is true?
a. Employees of Regional Dealer are required to recognize as gross income the gross profit Regional Dealer loses as a result of the sale to the employees.
b. None of the employees who take advantage of the fringe benefits described above are required to recognize income.
c. Regional Dealer officers must recognize gross income from the personal use of the company vehicles.
d. Employees of Majestic are required to recognize as gross income 18 percent (20% - 2%) of the cost of the automobile purchased.
e. None of these choices are correct.

Answer 1

Answer:

C) regional dealer officers must recognize gross income from the personal use of the company vehicles.

Explanation:

Both majestic´s vehicle company and regional dealer employee discounts qualify for exclusion treatment as a qualify employee discount. the personal use of the automobile is discriminatory and must be included in the officers´s gross income