The following information is available for Company ABC.
(All amounts provided are in US dollars)
$\begin{array}{lll}
&\text { Manufacturing Affiliate } & \text { Sales Affiliate } \
&\text { (Canada, income tax rate: } & \text { (United States, income } \
&40 \% \text { ) } & \text { tax rate: } 30 \% \text { ) }\
\text { Sales } & \_\_\_& \$ 10,000 \
\text { Cost of goods sold } & 5,000 &\_\_\_ \
\text { Operating expenses } & 1,000 & \$ 1,000\ \text { Taxable income}\ \text { Income taxes}\ \text {Net income }\
\end{array}$
-If the transfer price is $8,000,what is the income tax paid in the United States?

Question

Quizplus · Accepted Answer

The correct answer is A.The income tax paid in the United States is $300. This is calculated as follows:Taxable income = Sales - Cost of goods sold - Operating expenses = $10,000 - $8,000 - $1,000 = $1,000Income taxes = Taxable income x Income tax rate = $1,000 x 30% = $300

The Following Information Is Available for Company ABC -If the Transfer Price Is $8,000,what Is the Income Tax