Global Enterprises has a manufacturing affilate in Country A that incurs costs of $600,000 for goods at full capacity of 10,000 units that it sells to its sales affiliate in Country B. The sales affiliate resells these goods to final consumers for $100 per unit. Both affilitiates incur operating expenses of $100,000 each. Global Enterprises sets transfer price as $75 for the goods from its manufacuring affiliate in Country A to its sales affiliate in Country B. Now suppose that Country B levies a corporate income tax of 20 percent on taxable income (vs. 30 percent in Country A) and a tarrif on 10 percent on the declared value of the imported goods.

Required: Prepare a consolidated income statement for Global Enterprises at full capacity based on the above information.

The manufacturing affiliate in Country A received a notice from local tax authority who declared that the price of the goods selling to the affiliate in Country B is lower than that based on arm's length principle. Therefore Global Enterprises is required to raise the price to $80 per unit referring to prices used in comparable transactions between independent companies.

You have to prepare a consolidated income statement to reflect the effect of the transfer price increase required by the tax authority, and explain the result.