McGraw-Hill's Taxation of Individuals 3rd Edition by Brian Spilker,Benjamin Ayers,John Robinson,Edmund Outslay ,Ronald Worsham,John Barrick,Connie Weaver

Exercise 4

Jarvie loves to bike.In fact, he has always turned down better paying jobs to work in bicycle shops where he gets an employee discount.At Jarvie's current shop, Bad Dog Cycles, each employee is allowed to purchase four bicycles a year at a discount.Because road bikes have higher profit margins, employees receive a 30 percent discount on road bikes.Employees also normally receive a 20 percent discount on mountain bikes.During the current year, Jarvie bought the following bikes:
a.What amount is Jarvie required to include in taxable income from these purchases
b.What amount of deductions is Bad Dog allowed to claim from these transactions