Meg works for Freedom Airlines in the accounts payable department. Meg and all other employees receive free flight benefits (for the employee, family, and 10 free buddy passes for friends per year) as part of its employee benefits package. If Meg uses 45 flights with a value of $20,655 this year, how much must she include in her compensation this year?

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 Jarvies current shop, Bad Dog Cycles, each employee is allowed to purchase four bicycles a year at a discount. Bad Dog has an average gross profit percentage on bicycles of 25 percent. During the current year, Jarvie bought the following bikes:

Description	Retail Price		Cost		Employee Price
Specialized road bike	$	7,400	$	5,100	$	5,920
Rocky Mountain mountain bike		4,200		3,500		3,360
Trek road bike		4,700		4,200		3,290
Yeti mountain bike		4,200		3,120		3,360

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?