Question 1

The monetary amount used to record intercompany transactions is called:

Accepted Answer

A)  exchange rate. 
B)  transfer price. 
C)  conversion rate. 
D)  incremental cost. 
A)  exchange rate. 
B)  transfer price. 
C)  conversion rate. 
D)  incremental cost. B

Question 2

Which of the following is true of profit split method?

Accepted Answer

A)  It is based on the assumption that similarly situated taxpayers will tend to earn similar returns over a given period. 
B)  Under this method, an arm's-length price is determined by referring to an objective measure of profitability earned by uncontrolled taxpayers on comparable, uncontrolled sales. 
C)  This method assumes that the buyer and seller are one economic unit. 
D)  This method is normally used in cases involving manufacturing, assembly, or other production of goods that are sold to related parties. 
A)  It is based on the assumption that similarly situated taxpayers will tend to earn similar returns over a given period. 
B)  Under this method, an arm's-length price is determined by referring to an objective measure of profitability earned by uncontrolled taxpayers on comparable, uncontrolled sales. 
C)  This method assumes that the buyer and seller are one economic unit. 
D)  This method is normally used in cases involving manufacturing, assembly, or other production of goods that are sold to related parties. C

Question 3

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. D

Question 4

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 5

Correlative relief is a component of the U.S. Model Income Tax Treaty. What is correlative relief?

Accepted Answer

A)  Additional tax imposed by the IRS related to a transfer pricing audit is offset with a foreign tax credit in the same amount. 
B)  When the IRS adjusts an international transfer price, the tax authority in the foreign country makes a corresponding adjustment. 
C)  The burden of revising transfer pricing schemes is offset by reduction of the corporate tax rate on foreign source income. 
D)  IRS and foreign taxing authorities will collaborate in determining the appropriate international transfer price. 
A)  Additional tax imposed by the IRS related to a transfer pricing audit is offset with a foreign tax credit in the same amount. 
B)  When the IRS adjusts an international transfer price, the tax authority in the foreign country makes a corresponding adjustment. 
C)  The burden of revising transfer pricing schemes is offset by reduction of the corporate tax rate on foreign source income. 
D)  IRS and foreign taxing authorities will collaborate in determining the appropriate international transfer price.

Question 6

In 2016, what portion of total U.S. goods trade was made up of intercompany transactions?

Accepted Answer

A)  20.1% 
B)  82.3% 
C)  42.4% 
D)  11.0% 
A)  20.1% 
B)  82.3% 
C)  42.4% 
D)  11.0%

Question 7

What is an ad valorem import duty?

Accepted Answer

A)  A requirement that a parent buys the output of a foreign subsidiary 
B)  A tariff charged by a government on the invoice price of goods coming into its country 
C)  A requirement that a subsidiary acquires its material inputs from a foreign parent 
D)  A tax charged on intercompany transactions 
A)  A requirement that a parent buys the output of a foreign subsidiary 
B)  A tariff charged by a government on the invoice price of goods coming into its country 
C)  A requirement that a subsidiary acquires its material inputs from a foreign parent 
D)  A tax charged on intercompany transactions

Question 8

In keeping with Internal Revenue Code, Clarence Company transfers goods to Marguerite Corporation, its foreign subsidiary, at the price Marguerite will sell the product to its customers, less the industry's average gross profit margin of 30%. What method of transfer pricing is Clarence using?

Accepted Answer

A)  Cost-plus method 
B)  Comparable uncontrolled price method 
C)  Comparable profits method 
D)  Resale price method 
A)  Cost-plus method 
B)  Comparable uncontrolled price method 
C)  Comparable profits method 
D)  Resale price method

Question 9

According to the study published by Professors Chan and Lo in 2004, which of the following variables is important when market-based methods of determining transfer prices are preferred?

Accepted Answer

A)  Restrictions on profit repatriation 
B)  Good relationship with local government 
C)  Minimization of import duties 
D)  Risk of expropriation and nationalization 
A)  Restrictions on profit repatriation 
B)  Good relationship with local government 
C)  Minimization of import duties 
D)  Risk of expropriation and nationalization

Question 10

Which of the following is a limitation of cost-based transfer pricing?

Accepted Answer

A)  Determining which measure of cost to use 
B)  Lack of incentive for selling division to control cost 
C)  Inefficiencies in one unit may be transferred to another unit 
D)  All of the above 
A)  Determining which measure of cost to use 
B)  Lack of incentive for selling division to control cost 
C)  Inefficiencies in one unit may be transferred to another unit 
D)  All of the above

Question 11

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 12

What is the advantage of an advance pricing agreement?

Accepted Answer

A)  IRS (Internal Revenue Service) will not challenge the transfer price after the tax return is filed if the agreement is followed. 
B)  Worldwide 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 (Internal Revenue Service) will not challenge the transfer price after the tax return is filed if the agreement is followed. 
B)  Worldwide 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

A multinational corporation may attempt to minimize the taxes it pays in a country with a high effective tax rate by setting a very high transfer price on goods transferred to a subsidiary in a high-tax country. Why is this often not successful?

Accepted Answer

A)  Laws in the foreign country may prohibit such a scheme. 
B)  The high transfer price would actually increase taxes. 
C)  Foreign exchange losses will eliminate any tax savings. 
D)  None of the above 
A)  Laws in the foreign country may prohibit such a scheme. 
B)  The high transfer price would actually increase taxes. 
C)  Foreign exchange losses will eliminate any tax savings. 
D)  None of the above

Question 14

Which of the following is true about advance pricing agreements?

Accepted Answer

A)  They are only granted for intercompany transactions between a U.S. parent and a foreign subsidiary. 
B)  They are only granted for intercompany transactions between a foreign parent and a U.S. corporation. 
C)  In 2003, the IRS approved several thousand advance pricing agreements for U.S. taxpayers. 
D)  None of the above is true. 
A)  They are only granted for intercompany transactions between a U.S. parent and a foreign subsidiary. 
B)  They are only granted for intercompany transactions between a foreign parent and a U.S. corporation. 
C)  In 2003, the IRS approved several thousand advance pricing agreements for U.S. taxpayers. 
D)  None of the above is true.

Question 15

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 16

What power is given to the Internal Revenue Service (IRS) under code section 482?

Accepted Answer

A)  Power to eliminate intercompany transactions 
B)  Authority to audit international transfer prices 
C)  Authority to impose tariffs on foreign imports 
D)  All of the above 
A)  Power to eliminate intercompany transactions 
B)  Authority to audit international transfer prices 
C)  Authority to impose tariffs on foreign imports 
D)  All of the above

Question 17

What is goal congruence?

Accepted Answer

A)  Making the goals of individual managers the same as corporate goals 
B)  Equating managerial goals to corporate goals 
C)  Aligning managerial goals with corporate goals 
D)  Giving managers complete autonomy to make decisions 
A)  Making the goals of individual managers the same as corporate goals 
B)  Equating managerial goals to corporate goals 
C)  Aligning managerial goals with corporate goals 
D)  Giving managers complete autonomy to make decisions

Question 18

According to a 2010 study by Ernst & Young, what percentage of MNC respondents had experienced a transfer pricing audit somewhere in the world since 2006?

Accepted Answer

A)  More than 10% 
B)  More than 25% 
C)  More than 66% 
D)  More than 90% 
A)  More than 10% 
B)  More than 25% 
C)  More than 66% 
D)  More than 90%

Question 19

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 20

For what reason are the transfer prices of imports more closely monitored worldwide than are exports?

Accepted Answer

A)  Political implications 
B)  Effect on local job availability 
C)  Impact on a country's balance of trade 
D)  All of the above 
A)  Political implications 
B)  Effect on local job availability 
C)  Impact on a country's balance of trade 
D)  All of the above

The monetary amount used to record intercompany transactions is called:

Which of the following is true of profit split method?

What is the primary advantage of a negotiated transfer price?

The "price" for using intangible property is called:

Correlative relief is a component of the U.S. Model Income Tax Treaty. What is correlative relief?

In 2016, what portion of total U.S. goods trade was made up of intercompany transactions?

What is an ad valorem import duty?

In keeping with Internal Revenue Code, Clarence Company transfers goods to Marguerite Corporation, its foreign subsidiary, at the price Marguerite will sell the product to its customers, less the industry's average gross profit margin of 30%. What method of transfer pricing is Clarence using?

According to the study published by Professors Chan and Lo in 2004, which of the following variables is important when market-based methods of determining transfer prices are preferred?

Which of the following is a limitation of cost-based transfer pricing?

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 advantage of an advance pricing agreement?

A multinational corporation may attempt to minimize the taxes it pays in a country with a high effective tax rate by setting a very high transfer price on goods transferred to a subsidiary in a high-tax country. Why is this often not successful?

Which of the following is true about advance pricing agreements?

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

What power is given to the Internal Revenue Service (IRS) under code section 482?

What is goal congruence?

According to a 2010 study by Ernst & Young, what percentage of MNC respondents had experienced a transfer pricing audit somewhere in the world since 2006?

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

For what reason are the transfer prices of imports more closely monitored worldwide than are exports?

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

International Taxation

Management Accounting Issues in Multinational Corporations

Auditing and Corporate Governance: An International Perspective

International Sustainability Reporting

Filters

Exam 9: International Transfer Pricing

The monetary amount used to record intercompany transactions is called:

Which of the following is true of profit split method?

What is the primary advantage of a negotiated transfer price?

The "price" for using intangible property is called:

Correlative relief is a component of the U.S. Model Income Tax Treaty. What is correlative relief?

In 2016, what portion of total U.S. goods trade was made up of intercompany transactions?

What is an ad valorem import duty?

In keeping with Internal Revenue Code, Clarence Company transfers goods to Marguerite Corporation, its foreign subsidiary, at the price Marguerite will sell the product to its customers, less the industry's average gross profit margin of 30%. What method of transfer pricing is Clarence using?

According to the study published by Professors Chan and Lo in 2004, which of the following variables is important when market-based methods of determining transfer prices are preferred?

Which of the following is a limitation of cost-based transfer pricing?

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 advantage of an advance pricing agreement?

A multinational corporation may attempt to minimize the taxes it pays in a country with a high effective tax rate by setting a very high transfer price on goods transferred to a subsidiary in a high-tax country. Why is this often not successful?

Which of the following is true about advance pricing agreements?

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

What power is given to the Internal Revenue Service (IRS) under code section 482?

What is goal congruence?

According to a 2010 study by Ernst & Young, what percentage of MNC respondents had experienced a transfer pricing audit somewhere in the world since 2006?

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

For what reason are the transfer prices of imports more closely monitored worldwide than are exports?

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

International Taxation

Management Accounting Issues in Multinational Corporations

Auditing and Corporate Governance: An International Perspective

International Sustainability Reporting

Filters