Question 1

Of the signals that may cause a taxing authority to audit a company's transfer price,which one is the most important?

Accepted Answer

A) the nature of the business of the multinational corporation 
B) unexpectedly low profit 
C) profits higher than expected for a specific industry 
D) parent company located in an emerging economy 
A) the nature of the business of the multinational corporation 
B) unexpectedly low profit 
C) profits higher than expected for a specific industry 
D) parent company located in an emerging economy

Question 2

According to the Internal Revenue Service,the most reliable measure of an arm's length prices for sales of tangible property in intercompany transactions is:

Accepted Answer

A) cost-plus method 
B) comparable profits method 
C) comparable uncontrolled price method 
D) resale price method 
A) cost-plus method 
B) comparable profits method 
C) comparable uncontrolled price method 
D) resale price method

Question 3

What is the term used for intercompany transactions from a subsidiary to a parent?

Accepted Answer

A) upstream transfer 
B) downstream transfer 
C) international transfer 
D) none of the above 
A) upstream transfer 
B) downstream transfer 
C) international transfer 
D) none of the above

Question 4

In 2009,what portion of total U.S.goods trade was made up of intercompany transactions?

Accepted Answer

A) 20% 
B) 82% 
C) 40% 
D) 11% 
A) 20% 
B) 82% 
C) 40% 
D) 11%

Question 5

What is the primary advantage of a negotiated transfer price?

Accepted Answer

A) It is objectively determined. 
B) It reflects managers' ability to control cost. 
C) It is based on arms-length transactions with unrelated parties. 
D) It preserves managerial autonomy to make decisions. 
A) It is objectively determined. 
B) It reflects managers' ability to control cost. 
C) It is based on arms-length transactions with unrelated parties. 
D) It preserves managerial autonomy to make decisions.

Question 6

Which cost will be minimized by setting a low transfer price?

Accepted Answer

A) withholding taxes on a downstream transfer 
B) import duties 
C) currency devaluation of foreign cash flows 
D) all of the above 
A) withholding taxes on a downstream transfer 
B) import duties 
C) currency devaluation of foreign cash flows 
D) all of the above

Question 7

Worldwide,which type of transfer is most likely to be audited?

Accepted Answer

A) royalties paid for intangible assets 
B) r & d conducted for related parties 
C) intercompany services 
D) interest on intercompany loans 
A) royalties paid for intangible assets 
B) r & d conducted for related parties 
C) intercompany services 
D) interest on intercompany loans

Question 8

Which of the following is NOT within the power of the Internal Revenue Service (IRS)under code Section 482?

Accepted Answer

A) authority to audit international transfer prices 
B) authority to adjust international transfer prices 
C) authority to levy addition taxes if a transfer price is deemed inappropriate 
D) authority to stop intercompany transactions 
A) authority to audit international transfer prices 
B) authority to adjust international transfer prices 
C) authority to levy addition taxes if a transfer price is deemed inappropriate 
D) authority to stop intercompany transactions

Question 9

The "price" for using intangible property is called:

Accepted Answer

A) interest. 
B) rent. 
C) royalty. 
D) service charge. 
A) interest. 
B) rent. 
C) royalty. 
D) service charge.

Question 10

What is the primary problem with using discretionary transfer prices to minimize costs in a decentralized organization?

Accepted Answer

A) They don't really minimize tax costs. 
B) The appropriate transfer price to minimize costs cannot be determined by the parent company. 
C) The benefits of decentralization may be lost. 
D) They are extremely difficult to administer. 
A) They don't really minimize tax costs. 
B) The appropriate transfer price to minimize costs cannot be determined by the parent company. 
C) The benefits of decentralization may be lost. 
D) They are extremely difficult to administer.

Question 11

What is the time frame in which taxpayers must produce documentation to the IRS,in which it justifies the transfer pricing method that it has selected as being the most reliable measure of arm's-length price?

Accepted Answer

A) 90 days 
B) 60 days 
C) immediately upon request 
D) 30 days 
A) 90 days 
B) 60 days 
C) immediately upon request 
D) 30 days

Question 12

What is the advantage of an advance pricing agreement?

Accepted Answer

A) IRS will not challenge the transfer price after the tax return is filed if the agreement is followed. 
B) World-wide taxes will be minimized. 
C) The brief form explaining the transfer price to be used can be completed with minimal effort by the taxpayer,but will reduce a tremendous amount of work later. 
D) All of the above are advantages of APA. 
A) IRS will not challenge the transfer price after the tax return is filed if the agreement is followed. 
B) World-wide taxes will be minimized. 
C) The brief form explaining the transfer price to be used can be completed with minimal effort by the taxpayer,but will reduce a tremendous amount of work later. 
D) All of the above are advantages of APA.

Question 13

Subsidiary X,located in a country with a 25% corporate income tax rate,and Subsidiary Y,located in a country with a 35% corporate income tax rate are part of a decentralized organization. They have been engaged in trade with one another using a negotiated transfer price of $50 per unit for sales by Subsidiary X to Subsidiary Y. Pipko,the parent company of both Subsidiary X and Subsidiary Y recently set a discretionary transfer price of $80 per unit for the transfers between X and Y. What is advantage of this decision?

Accepted Answer

A) Net income for Subsidiary X will increase by $30 per unit. 
B) Net income for the corporation as a whole will increase by $30 per unit. 
C) Net income for the corporation as a whole will increase by $3 per unit. 
D) Net income for Subsidiary Y will decrease by $30 per unit. 
A) Net income for Subsidiary X will increase by $30 per unit. 
B) Net income for the corporation as a whole will increase by $30 per unit. 
C) Net income for the corporation as a whole will increase by $3 per unit. 
D) Net income for Subsidiary Y will decrease by $30 per unit.

Question 14

In addition to regulating the transfer prices on tangible property,the Internal Revenue Service also provides guidance on:

Accepted Answer

A) interest charged on intercompany loans. 
B) transfer prices for intangible property. 
C) charges for intercompany services. 
D) all of the above. 
A) interest charged on intercompany loans. 
B) transfer prices for intangible property. 
C) charges for intercompany services. 
D) all of the above.

Question 15

How can the conflict between cost minimization and performance evaluation be overcome in a decentralized organization?

Accepted Answer

A) dual transfer pricing systems 
B) market-based transfer pricing systems 
C) cost-based transfer pricing systems 
D) negotiated transfer pricing systems 
A) dual transfer pricing systems 
B) market-based transfer pricing systems 
C) cost-based transfer pricing systems 
D) negotiated transfer pricing systems

Question 16

In a 2007 Ernst & Young survey,which industry was found most at risk for a transfer pricing adjustment?

Accepted Answer

A) consumer packaged goods 
B) pharmaceuticals 
C) petroleum 
D) manufacturing 
A) consumer packaged goods 
B) pharmaceuticals 
C) petroleum 
D) manufacturing

Question 17

Using the comparable profits method of transfer pricing,the transfer price is determined by:

Accepted Answer

A) backing into it based on objective measures of sales,operating expenses,and a reasonable profit margin on sales. 
B) adding a standard profit margin to the operating expenses of the buying division. 
C) dividing a reasonable amount of profit between the selling and buying divisions. 
D) comparing the normal profits of the selling and buying divisions and basing the price on the highest margin. 
A) backing into it based on objective measures of sales,operating expenses,and a reasonable profit margin on sales. 
B) adding a standard profit margin to the operating expenses of the buying division. 
C) dividing a reasonable amount of profit between the selling and buying divisions. 
D) comparing the normal profits of the selling and buying divisions and basing the price on the highest margin.

Question 18

IRS code Section 482 describes appropriate transfer prices as "the prices which would have been agreed upon between unrelated parties engaged in the same or similar transactions under the same or similar conditions in the open market." How does it refer to such prices?

Accepted Answer

A) arm's length prices 
B) market prices 
C) international prices 
D) comparable prices 
A) arm's length prices 
B) market prices 
C) international prices 
D) comparable prices

Question 19

When a transfer price is set by the management of a parent company rather than by the subsidiary managers,what kind of transfer price is being used?

Accepted Answer

A) market-based transfer price 
B) negotiated transfer price 
C) discretionary transfer price 
D) cost-based transfer price 
A) market-based transfer price 
B) negotiated transfer price 
C) discretionary transfer price 
D) cost-based transfer price

Question 20

Withholding taxes on dividends paid by a foreign subsidiary to a parent can be reduced by:

Accepted Answer

A) raising prices paid by the parent for goods it acquires from the subsidiary. 
B) raising prices paid by the subsidiary for goods it acquires from the parent. 
C) negotiated transfer pricing. 
D) reducing prices charged by the parent for good transferred to the subsidiary. 
A) raising prices paid by the parent for goods it acquires from the subsidiary. 
B) raising prices paid by the subsidiary for goods it acquires from the parent. 
C) negotiated transfer pricing. 
D) reducing prices charged by the parent for good transferred to the subsidiary.

Of the signals that may cause a taxing authority to audit a company's transfer price,which one is the most important?

According to the Internal Revenue Service,the most reliable measure of an arm's length prices for sales of tangible property in intercompany transactions is:

What is the term used for intercompany transactions from a subsidiary to a parent?

In 2009,what portion of total U.S.goods trade was made up of intercompany transactions?

What is the primary advantage of a negotiated transfer price?

Which cost will be minimized by setting a low transfer price?

Worldwide,which type of transfer is most likely to be audited?

Which of the following is NOT within the power of the Internal Revenue Service (IRS)under code Section 482?

The "price" for using intangible property is called:

What is the primary problem with using discretionary transfer prices to minimize costs in a decentralized organization?

What is the time frame in which taxpayers must produce documentation to the IRS,in which it justifies the transfer pricing method that it has selected as being the most reliable measure of arm's-length price?

What is the advantage of an advance pricing agreement?

In addition to regulating the transfer prices on tangible property,the Internal Revenue Service also provides guidance on:

How can the conflict between cost minimization and performance evaluation be overcome in a decentralized organization?

In a 2007 Ernst & Young survey,which industry was found most at risk for a transfer pricing adjustment?

Using the comparable profits method of transfer pricing,the transfer price is determined by:

IRS code Section 482 describes appropriate transfer prices as "the prices which would have been agreed upon between unrelated parties engaged in the same or similar transactions under the same or similar conditions in the open market." How does it refer to such prices?

When a transfer price is set by the management of a parent company rather than by the subsidiary managers,what kind of transfer price is being used?

Withholding taxes on dividends paid by a foreign subsidiary to a parent can be reduced by:

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Comparative Accounting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Additional Financial Reporting Issues

Analysis of Foreign Financial Statements

International Taxation

Strategic Accounting Issues in Multinational Corporations

Comparative International Auditing and Corporate Governance

International Corporate Social Reporting

Filters

Exam 12: International Transfer Pricing

Of the signals that may cause a taxing authority to audit a company's transfer price,which one is the most important?

According to the Internal Revenue Service,the most reliable measure of an arm's length prices for sales of tangible property in intercompany transactions is:

What is the term used for intercompany transactions from a subsidiary to a parent?

In 2009,what portion of total U.S.goods trade was made up of intercompany transactions?

What is the primary advantage of a negotiated transfer price?

Which cost will be minimized by setting a low transfer price?

Worldwide,which type of transfer is most likely to be audited?

Which of the following is NOT within the power of the Internal Revenue Service (IRS)under code Section 482?

The "price" for using intangible property is called:

What is the primary problem with using discretionary transfer prices to minimize costs in a decentralized organization?

What is the time frame in which taxpayers must produce documentation to the IRS,in which it justifies the transfer pricing method that it has selected as being the most reliable measure of arm's-length price?

What is the advantage of an advance pricing agreement?

In addition to regulating the transfer prices on tangible property,the Internal Revenue Service also provides guidance on:

How can the conflict between cost minimization and performance evaluation be overcome in a decentralized organization?

In a 2007 Ernst & Young survey,which industry was found most at risk for a transfer pricing adjustment?

Using the comparable profits method of transfer pricing,the transfer price is determined by:

IRS code Section 482 describes appropriate transfer prices as "the prices which would have been agreed upon between unrelated parties engaged in the same or similar transactions under the same or similar conditions in the open market." How does it refer to such prices?

When a transfer price is set by the management of a parent company rather than by the subsidiary managers,what kind of transfer price is being used?

Withholding taxes on dividends paid by a foreign subsidiary to a parent can be reduced by:

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Comparative Accounting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Additional Financial Reporting Issues

Analysis of Foreign Financial Statements

International Taxation

Strategic Accounting Issues in Multinational Corporations

Comparative International Auditing and Corporate Governance

International Corporate Social Reporting

Filters