Varson Inc

question 66

Multiple Choice

Varson Inc.and Vonsell Inc.are owned by the same family.The family decides to purchase $150,000 of deductible advertising that will benefit the businesses operated by both corporations.Which of the following statements is true?

• A)If Varson's marginal tax rate is higher than Vonsell's marginal tax rate,Vonsell should purchase the advertising to minimize after-tax cost.
• B)If Varson's marginal tax rate is higher than Vonsell's marginal tax rate,the tax law requires Vonsell to purchase the advertising.
• C)If Varson's marginal tax rate is higher than Vonsell's marginal tax rate,Varson can claim a $150,000 deduction on its tax return regardless of which corporation purchases the advertising.
• D)None of the above is true.

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Definitions:

Stockholders' Equity

The amount of assets remaining in a company after all liabilities have been deducted, essentially representing the owners' claim on the company's assets.

Market Price

is the current price at which an asset or service can be bought or sold in a competitive marketplace.

Common Stock

A type of equity security that represents ownership in a corporation, entitling the holder to a share of the company's profits through dividends and/or capital appreciation.

Net Profit Margin

A profitability ratio calculated by dividing net income by revenue, indicating the percentage of each dollar of revenue that results in net profit.