Question 1

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 2

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 3

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

Accepted Answer

A)  Authority to audit international transfer prices 
B)  Authority to adjust international transfer prices 
C)  Authority to adjust a company's tax liability if the transfer price is deemed to be inappropriate 
D)  Authority to stop intercompany transactions 
A)  Authority to audit international transfer prices 
B)  Authority to adjust international transfer prices 
C)  Authority to adjust a company's tax liability if the transfer price is deemed to be inappropriate 
D)  Authority to stop intercompany transactions

Question 4

The Internal Revenue Service determined that Covington Ltd. should have been using a transfer price of $400 for the purchase of goods from its U.S. subsidiary but had set the price at $50. What is the rate of penalty that the IRS can impose on the taxpayer?

Accepted Answer

A)  10% of the amount of taxes underpaid 
B)  20% of the amount of taxes underpaid 
C)  40% of the amount of taxes underpaid 
D)  100% of the amount of taxes underpaid 
A)  10% of the amount of taxes underpaid 
B)  20% of the amount of taxes underpaid 
C)  40% of the amount of taxes underpaid 
D)  100% of the amount of taxes underpaid

Question 5

What is an advance pricing agreement?

Accepted Answer

A)  A transfer price that is negotiated between two divisions of a decentralized organization 
B)  A transfer pricing method accepted by the IRS before an intercompany transaction is completed 
C)  A contract between a parent company and a foreign subsidiary to complete a transaction at a specified future price 
D)  A foreign currency firm commitment with payment before delivery of the product 
A)  A transfer price that is negotiated between two divisions of a decentralized organization 
B)  A transfer pricing method accepted by the IRS before an intercompany transaction is completed 
C)  A contract between a parent company and a foreign subsidiary to complete a transaction at a specified future price 
D)  A foreign currency firm commitment with payment before delivery of the product

Question 6

While there are many advantages of decentralization, what is the major disadvantage of decentralized organizations?

Accepted Answer

A)  Manageability of multiple divisions in both domestic and international operations 
B)  Possible conflict between division managers' decisions and goals of the organization 
C)  Making timely operating decisions 
D)  All of the above 
A)  Manageability of multiple divisions in both domestic and international operations 
B)  Possible conflict between division managers' decisions and goals of the organization 
C)  Making timely operating decisions 
D)  All of the above

Question 7

Profit indicators that might be considered in applying the comparable profits method include the ratio of:

Accepted Answer

A)  operating income to operating assets. 
B)  debt to equity. 
C)  receivables to net sales. 
D)  operating expenses to net sales. 
A)  operating income to operating assets. 
B)  debt to equity. 
C)  receivables to net sales. 
D)  operating expenses to net sales.

Question 8

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.

Question 9

Cost-plus method is most appropriate when:

Accepted Answer

A)  there are comparable uncontrolled sales and the related buyer merely distributes the goods it purchases. 
B)  the related buyer acts as a sales subsidiary. 
C)  the related buyer does not add substantial value to the product. 
D)  the related buyer does more than simply distribute the goods it purchases. 
A)  there are comparable uncontrolled sales and the related buyer merely distributes the goods it purchases. 
B)  the related buyer acts as a sales subsidiary. 
C)  the related buyer does not add substantial value to the product. 
D)  the related buyer does more than simply distribute the goods it purchases.

Question 10

Under what condition does the IRS consider the resale price method acceptable as a transfer price?

Accepted Answer

A)  The subsidiary is a foreign controlled corporation. 
B)  The related party is merely a distributor of finished goods. 
C)  The divisions are part of a decentralized organization. 
D)  There is no market price upon which to base the transfer price. 
A)  The subsidiary is a foreign controlled corporation. 
B)  The related party is merely a distributor of finished goods. 
C)  The divisions are part of a decentralized organization. 
D)  There is no market price upon which to base the transfer price.

Question 11

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

Accepted Answer

A)  referring to an objective measure of profitability earned by uncontrolled taxpayers on comparable, uncontrolled 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)  referring to an objective measure of profitability earned by uncontrolled taxpayers on comparable, uncontrolled 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 12

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 13

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

Accepted Answer

A)  Rental or lease payment made for use of tangible property 
B)  Sale of tangible property 
C)  Intercompany services 
D)  Exports 
A)  Rental or lease payment made for use of tangible property 
B)  Sale of tangible property 
C)  Intercompany services 
D)  Exports

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

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

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

The Internal Revenue Service determined that Covington Ltd. should have been using a transfer price of $400 for the purchase of goods from its U.S. subsidiary but had set the price at $50. What is the rate of penalty that the IRS can impose on the taxpayer?

What is an advance pricing agreement?

While there are many advantages of decentralization, what is the major disadvantage of decentralized organizations?

Profit indicators that might be considered in applying the comparable profits method include the ratio of:

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

Cost-plus method is most appropriate when:

Under what condition does the IRS consider the resale price method acceptable as a transfer price?

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

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?

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

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

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Exam 9: International Transfer Pricing

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

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

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

The Internal Revenue Service determined that Covington Ltd. should have been using a transfer price of $400 for the purchase of goods from its U.S. subsidiary but had set the price at $50. What is the rate of penalty that the IRS can impose on the taxpayer?

What is an advance pricing agreement?

While there are many advantages of decentralization, what is the major disadvantage of decentralized organizations?

Profit indicators that might be considered in applying the comparable profits method include the ratio of:

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

Cost-plus method is most appropriate when:

Under what condition does the IRS consider the resale price method acceptable as a transfer price?

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

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?

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

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