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:

Complete Constituent

A syntactic unit that contains a complete clause or thought within a sentence.

Anomaly

A deviation from the common rule, type, arrangement, or form; something that is abnormal or does not fit a standard pattern.

Turkey Sandwich

A type of sandwich made by placing slices of cooked turkey between pieces of bread.

Anomaly

A deviation from the common rule, type, arrangement, or form; something that does not fit into the normal pattern or expected results.