1. OT Company has two subsidiaries in U.S. and Europe. Tax rate in U.S. and Europe are 3x% and 4x%, respectively. a. Calculate the income tax and net income for the low-markup policy for U.S. subsidiary, Europe subsidiary and the combined values. (5 pts) b. By changing the transfer price x%, reach a higher combined net income and fill the high- markup policy table according to that. (Hint: OT U.S. sales price becomes cost of goods sold for OT Europe.) (15 pts) Low-Markup Policy Sales Less cost of goods sold Gross profit Less operating expense Taxable income Less income taxes Net income OT U.S. (subsidiary) $2400 -$2000 $400 -$50 $350 OT Europe (subsidiary) $3000 -$2400 $600 -$50 $550 Europe and U.S. Combined $3000 -$2000 $1000 -$100 $900 OT U.S. (subsidiary) OT Europe (subsidiary) $3000 Europe and U.S. Combined -$2000 High-Markup Policy Sales Less cost of goods sold Gross profit Less operating expenses Taxable income Less income taxes Net income -$50 -$50 1 1. OT Company has two subsidiaries in U.S. and Europe. Tax rate in U.S. and Europe are 3x% and 4x%, respectively. a. Calculate the income tax and net income for the low-markup policy for U.S. subsidiary, Europe subsidiary and the combined values. (5 pts) b. By changing the transfer price x%, reach a higher combined net income and fill the high- markup policy table according to that. (Hint: OT U.S. sales price becomes cost of goods sold for OT Europe.) (15 pts) Low-Markup Policy Sales Less cost of goods sold Gross profit Less operating expense Taxable income Less income taxes Net income OT U.S. (subsidiary) $2400 -$2000 $400 -$50 $350 OT Europe (subsidiary) $3000 -$2400 $600 -$50 $550 Europe and U.S. Combined $3000 -$2000 $1000 -$100 $900 OT U.S. (subsidiary) OT Europe (subsidiary) $3000 Europe and U.S. Combined -$2000 High-Markup Policy Sales Less cost of goods sold Gross profit Less operating expenses Taxable income Less income taxes Net income -$50 -$50 1