Pratt Company Structured an Income-Generating Transaction So That the $750,000

question 19

Multiple Choice

Pratt Company structured an income-generating transaction so that the $750,000 income and cash flow shifted to Pratt's wholly owned subsidiary,PTB Company.If Pratt's marginal tax rate is 40%,and PTB's tax rate is 15%,compute the tax savings from the income shift.

• A)$300,000
• B)$250,000
• C)$187,500
• D)$112,500

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Definitions:

Agency Relationship

A legal arrangement where one party (the agent) is authorized to act on behalf of another (the principal) in business or legal matters.

Represents

To act on behalf of someone or something, often in a legal or official capacity.

Independent Contractor

An individual who provides services to another entity under a contract for services, retaining control over how the services are performed.

Specific Undertaking

A precise commitment or obligation that a party agrees to carry out.