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 net income in Canada?

Question

Quizplus · Accepted Answer

The net income in Canada is calculated as follows: Sales (transfer price) - Cost of Goods Sold (COGS) - Operating Expenses - Income Taxes. Given the transfer price is $8,000, COGS is $5,000, and Operating Expenses are $1,000, the taxable income is $2,000 ($8,000 - $5,000 - $1,000). With a tax rate of 40%, the income taxes are $800 ($2,000 * 40%). Therefore, the net income is $1,200 ($2,000 - $800).

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