The Following Information Is Available for Company ABC -If the Transfer Price Is $8,000,what Is the Net Income

question 14

Multiple Choice

The following information is available for Company ABC.
(All amounts provided are in US dollars)
$\begin{array}{lll}&\text { Manufacturing Affiliate } & \text { Sales Affiliate } \\&\text { (Canada, income tax rate: } & \text { (United States, income } \\&40 \% \text { ) } & \text { tax rate: } 30 \% \text { ) }\\\text { Sales } & \_\_\_& \$ 10,000 \\\text { Cost of goods sold } & 5,000 &\_\_\_ \\\text { Operating expenses } & 1,000 & \$ 1,000\\ \text { Taxable income}\\ \text { Income taxes}\\ \text {Net income }\\\end{array}$
-If the transfer price is $8,000,what is the net income in Canada?

• A) $800
• B) $1,200
• C) $2,000
• D) $2,400

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Definitions:

Standard Deviation

The measure indicating the amount of variation or spread in a set of data points relative to its mean.

Underlying Asset

The financial instrument (such as a stock, bond, commodity, or currency) upon which a derivative's value is based.

In The Money

A term describing an option contract that has intrinsic value, meaning it is profitable to exercise.

Underlying Stock Price

The prevailing market value of the stock that a derivative contract, like an option, relies on.