Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The question is fully complete. Can you please help me with this question. this is all the data require. Thanks, Case 12-2 Global Electronics Company

image text in transcribed

image text in transcribed

The question is fully complete. Can you please help me with this question. this is all the data require.

Thanks,

Case 12-2 Global Electronics Company in its Malaysian pany a manufactures laser guitars Malay are sold to two customers in production cost of $120 per unit. L the United States Electronic Super- operation (LG-Malay) at a The cost to tr owned subsidiary) and Walmart (an unaffiliated customer) in the United States Malaysian to the United States is s15 per unit and is paid manufacturers of laser guitars sell to customers percent. LG Malay sells (production plus transportation) of guitars to Walmart price of s180 per unit of 20 percent on Pays applicable duties import its purchases of laser guitars. Superstores also Walmart on its from Consistent with industry practice, of $324 places a 50 ses laser and sells them at a retail $333 per percent Superstores sells Malay at a retail price of per unit. El unit. LG-Malay is a Malaysian taxpayer, and Electronic payer. Assume the following tax rates apply: Superstores is a US. tax- U.S. ad valorem import duty U.S, corporate income tax rate Malaysian income tax rate 15% Malaysian withholding tax rate Required 1. Determine three possible prices for the sale of laser guitars from LG-Malay to Electronic Superstores that comply with US tax regulations under (a) the com- parable uncontrolled price method, (b) the resale price method, and (c) the cost plus method. Assume that none of the three methods is clearly the best method and that GEC would be able to justify any of the three prices for both US and Malaysian tax purposes 2. Assume that profits are not back to GEC in the States as a dividend. Determine which of the three possible transfer prices maxi mizes GEC's consolidated after-tax net income. Show your calculation of consol- idated net income for all three prices. You can assume that Electronic Superstores distributes 100 percent of its income to GEC as a dividend. However, there is a 100 percent exclusion for dividends received from a domestic subsidiary, so GEC will not pay additional taxes on dividends received from Electronic Superstores Only Electronic Superstores pays taxes on the income it earns. 3. Assume that LG-Malay's profits are repatriated back to GEC in the United States as a dividend and that Electronic Superstores profits are paid to GEC as a dividend. Determine which of the three possible transfer prices maximizes net after-tax cash flow to GEC. Remember that dividends repatriated back to the United States are taxable in the United States and that an indirect credit will be allowed by the US. government for taxes deemed to have been

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered 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

Students also viewed these Finance questions