1. Zubin Ltd. had set the transfer price at $20 for the purchase of goods from its U.S. subsidiary. But the IRS audited the transfer price and determined that it should have been using a transfer price of $190. Assuming the adjustment results in an increase in U.S. tax liability of $200,000. Determine the total tax liability that the company will pay the IRS as a result of its misstatement

2. Trooper manufactures sweatshirts at a cost of $20 each and sells the shirts to its Mexican affiliate, Jose Inc, which in turn sells the shirts to local retailers at a resale price of $50 per unit.

Jose Inc. adds no significant value to the shirts. Other Mexican retailers of similar sweatshirts normally earn a gross profit of 25 percent on the sales price. Trooper’s main competitor in the United States sells similar sweatshirts at an average gross profit of 30 percent. Determine an acceptable transfer price.