George is employed by the Quality Appliance Company. All the full time employees are allowed to purchase appliances at the company's cost plus 10%. The employee also is given, at no cost, a 1-year service contract on all the goods purchased from the

company. George purchased a refrigerator for $500 . The company's normal selling price for the refrigerator is $800 . George also received a service contract, at no charge, that had a value of $150 . During the year, George was required to have his refrigerator serviced once. The cost of the call would have been $75 if he had not had the service contract. Is George required to recognize any income from the purchase of the refrigerator, the receipt of the service contract, and the service call?

George will probably be required to recognize $120 income from the service contract. The company can sell the service contract to an employee at a 20% discount and the employee is not required to recognize income. George received a 100% discount; therefore, $120 (80% × $150) must be included in his gross income. However, George can perhaps make a convincing argument that he is merely receiving a no-additional-cost service, and thus would not be required to recognize income. George will not be required to recognize income from the bargain purchase of the refrigerator because he paid more than the employer's cost.