Short Company allows a 20% discount to all non-officer employees. Officers, all

Question

Short Company allows a 20% discount to all non-officer employees. Officers, all highly compensated, are allowed a 30% discount on company products. Short’s gross profit is 35%. Which of the following is true?

An officer who takes a 30% discount must include the extra 10% (30%-20%) in gross income.

All discounts taken by employees are includible because the plan is discriminatory.

All discounts taken by officers (30%) are includible because the plan is discriminatory.

None of the discounts are includible in income because the discount in all cases is less than the company’s gross profit percentage.

Explanation / Answer

ANS:- C:- All discounts taken by officers (30%) are includible because the plan is discriminatory.

-->> The plan is discriminatory to non-highly compensated employees; therefore, all discounts actually taken by officers are includible in the officers' income, not just the excess of what is available to the nonofficers. Any discount taken by a nonofficer would be excluded from the employee's gross income.

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