Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

put 3 where you see x 1. OT Company has two subsidiaries in U.S. and Europe. Tax rate in U.S. and Europe are 3x% and

image text in transcribedput 3 where you see x

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 expenses Taxable income Less income taxes Net income OT U.S. (subsidiary) S2400 -$2000 S400 -$50 S350 OT Europe (subsidiary) $3000 -S2400 $600 -$50 $550 Europe and U.S. Combined $3000 -$2000 $1000 -$100 8900 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 expenses Taxable income Less income taxes Net income OT U.S. (subsidiary) S2400 -$2000 S400 -$50 S350 OT Europe (subsidiary) $3000 -S2400 $600 -$50 $550 Europe and U.S. Combined $3000 -$2000 $1000 -$100 8900 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Crimes

Authors: Maximilian Edelbacher, Peter Kratcoski, Michael Theil

1st Edition

0367866528, 978-0367866525

More Books

Students also viewed these Finance questions