Which of the Following Statements About Transfer Pricing Is True

question 21

Multiple Choice

Which of the following statements about transfer pricing is true?

• A)The higher the transfer price, the larger the gross profits of the transferring division relative to the receiving division.
• B)Very high markup policy used in the transfer pricing to a subsidiary makes the adjusted present value (APV) of that subsidiary's capital expenditure appear less attractive.
• C)Very low markup policy used in the transfer pricing to a subsidiary makes the adjusted present value (APV) of that subsidiary's capital expenditure appear less attractive.
• D)Both a and b

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Definitions:

Consolidated Income Tax Return

A singular income tax return filed by an affiliated group of corporations that combines their tax liabilities into one return, possibly resulting in tax benefits.

Advantages

Benefits or desirables attributes that contribute to the superiority of a product, service, or entity.

Ownership Structure

The arrangement or framework that details the distribution of ownership and the specifics of shareholders' rights in a corporation.

Deferred Income Tax Asset

An accounting term that refers to a situation where a business has paid more taxes to the government than it currently owes due to differences in accounting practices.