Isco Inc manufactures a produuct for S 20 per

SWFT Comprehensive Vol 2020
43rd Edition
ISBN:9780357391723
Author:Maloney
Publisher:Maloney
Chapter25: Taxation Of International Transact Ions
Section: Chapter Questions
Problem 34P
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Question
Usco Inc. manufactures a product for $20 per
unit that is sold to its affiliate, Foreignco, for $24
per unit. Foreignco sells the product at $30 per
unit in the local market. Assuming a U.S. tax rate
of 21% and Foreignco's local income rate of 10%,
the total income tax is calculated as follows:
Usco
Foreignco
Total
Sales
$24
$30
$30
Cost of sales
20
24
20
Тахable
income
$4
$6
$10
Tax liability
$0.84
(21%)
$0.60
(10%)
$1.44
Assume the IRS adjusts the transfer price to $28.
Determine the total income tax if the tax
authority of Foreignco's local government does
not provide a correlative adjustment.
Group of answer choices
$2.28
$1.44
$1.88
$1.04
Transcribed Image Text:Usco Inc. manufactures a product for $20 per unit that is sold to its affiliate, Foreignco, for $24 per unit. Foreignco sells the product at $30 per unit in the local market. Assuming a U.S. tax rate of 21% and Foreignco's local income rate of 10%, the total income tax is calculated as follows: Usco Foreignco Total Sales $24 $30 $30 Cost of sales 20 24 20 Тахable income $4 $6 $10 Tax liability $0.84 (21%) $0.60 (10%) $1.44 Assume the IRS adjusts the transfer price to $28. Determine the total income tax if the tax authority of Foreignco's local government does not provide a correlative adjustment. Group of answer choices $2.28 $1.44 $1.88 $1.04
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