Subsidiary X, Located in a Country with a 25% Corporate

question 36

Multiple Choice

Subsidiary X, located in a country with a 25% corporate income tax rate, and Subsidiary Y, located in a country with a 35% corporate income tax rate are part of a decentralized organization. They have been engaged in trade with one another using a negotiated transfer price of $50 per unit for sales by Subsidiary X to Subsidiary Y. Pipko, the parent company of both Subsidiary X and Subsidiary Y recently set a discretionary transfer price of $80 per unit for the transfers between X and Y. What is advantage of this decision?

• A) Net income for Subsidiary X will increase by $30 per unit.
• B) Net income for the corporation as a whole will increase by $30 per unit.
• C) Net income for the corporation as a whole will increase by $3 per unit.
• D) Net income for Subsidiary Y will decrease by $30 per unit.

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Definitions:

Mean Score

An average score calculated by adding up all the scores of a group and then dividing by the number of scores.

IQ Tests

Standardized assessments designed to measure human intelligence and cognitive abilities in relation to an average score, usually with a mean of 100.

Mean Score

The arithmetic average obtained by adding together all the scores and dividing by the number of scores.

Standard Deviation

A measure of the amount of variation or dispersion in a set of values.