Reference no: EM132966049
Questions -
Singer Corporation, a U.S. corporation, owns 100% of Merchant Corporation, a Thailand corporation. Singer manufactures sewing machines at a cost of $1,200 per unit and sells them to Merchant, which resells the goods (without any further processing) to unrelated foreign customers for $1,800 each. Independent foreign distributors typically earn commissions of 20% (expressed as a percentage of the sales price) on the purchase and resale of products comparable to those produced by Singer.
1. Which transfer pricing method applies?
a) Cost Plus b) Resale Price Method c) Comparable Uncontrolled Price d) Profit Split
2. Using the above method, what would the transfer price between Singer and Merchant be?
a) $1,440 b) $1,800 c) $2,160 d) $1,200
Doral Corporation, a U.S. corporation, owns 100% of Golfo, a foreign corporation that manufactures golf clubs at a cost of $120 each and sells them to Doral. Doral attaches its trade name to the golf clubs (which has a significant effect on their resale price), and resells them to unrelated customers in the United States for $220 each. Independent foreign manufacturers producing similar golf clubs usually earn a gross profit mark-up (expressed as a percentage of the manufacturing costs)of15%.
3. Which transfer pricing method applies?
a) Cost Plus b) Resale Price Method c) Comparable Uncontrolled Price d) Profit Split
4. Using the above method, what would the transfer price between Doral and Golfo be?
a) $220 b) $120 c) $253 d) $138
Friedo Corporation, a U.S. corporation, owns 100% of Swissy Corporation, a Swiss corporation. Friedo manufactures high-end chairs at a cost of $2,500 per unit, and sells them to unrelated foreign distributors at a price of $3,750 per unit. Friedo also sells the chairs to Swissy, which then resells them to unrelated foreign customers for $4,250 each. The conditions of Friedo's sales to Swissy are essentially equivalent to those of the sales made to unrelated foreign distributors.
5. Which transfer pricing method applies?
a) Cost Plus b) Resale Price Method c) Comparable Uncontrolled Price d) Profit Split
6. Using the above method, what would the transfer price between Friedo and Swissy be?
a) $3,750 b) $4,250 c) $2,500 d) $4,000