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Problem1. Jarvie loves to bike. In fact, he has always turned down better paying jobs to work in bicycle shops where he acquires an employee discount. At Jarvie’s current shop, Bad Dog Cycles, each employee is allowed to buy four bicycles a year at a discount. Bad Dog has an average gross profit percentage on bicycles of 25 percent. Throughout the current year, Jarvie bought the following bikes:


Description                                     Retail Price     Cost     Employee
Price

Specialized road bike                           $5,300        $3,400     $3,710
Rocky Mountain mountain bike                 8,700         6,650      6,960
Trek road bike                                      2,100         1,780      1,470
Yeti mountain bike                                 6,300         4,750      5,040

problem1.  What amount is Jarvie needed to include in the taxable income from these purchases?

problem2.  What amount of deductions is Bad Dog allowed to claim from these kinds of transactions?

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