Hendricks Corporation Sells Widgets in Two States

question 21

Multiple Choice

Hendricks Corporation sells widgets in two states. State A levies a 9% effective tax rate, and State B levies a 3% rate. A and B have adopted sales-factor-only apportionment formulas. To reduce overall multistate income tax liabilities, Hendricks should:

• A) Move its home office from B to A.
• B) Remove all stored inventory from A.
• C) Establish a personal training center in A.
• D) Convert to employee status the independent contractors that it uses to sell widgets in A.

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Definitions:

Double-Entry Accounting

An accounting method that involves making two entries for every transaction, to maintain the balance of the accounting equation.

Debits and Credits

Fundamental elements of double-entry bookkeeping, where debits represent increases in assets or expenses and credits signify increases in liabilities, equity, or income.

Transaction

An agreement or exchange between two or more parties that is recorded and has a financial impact on the business.

T-Account

A graphical representation of a ledger account, showing two sides for debits and credits, used in accounting.