International Accounting 4E Timothy DoupnikHector Perera Test Bank Chapter 012.docx

International Accounting 4E Timothy DoupnikHector Perera Test Bank Chapter 012.docx

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InternationalAccounting4ETimothyDoupnikHectorPereraTestBankChapter012

Chapter12

InternationalTransferPricing

MultipleChoiceQuestions

1.

Themonetaryamountusedtorecordintercompanytransactionsiscalled:

A. 

exchangerate.

B. 

transferprice.

C. 

conversionrate.

D. 

incrementalcost.

2.

Whatisthetermusedforintercompanytransactionsfromaparenttoasubsidiary?

A. 

Horizontaltransfer

B. 

Downstreamtransfer

C. 

Internationaltransfer

D. 

Noneoftheabove

3.

Whatisthetermusedforintercompanytransactionsfromasubsidiarytoaparent?

A. 

Upstreamtransfer

B. 

Horizontaltransfer

C. 

Internationaltransfer

D. 

Noneoftheabove

4.

In2012,whatportionoftotalU.S.goodstradewasmadeupofintercompanytransactions?

A. 

20%

B. 

82%

C. 

42%

D. 

11%

5.

Whatistheprimarycharacteristicofadecentralizedorganization?

A. 

Sizeofdivisions

B. 

Numberofdivisions

C. 

Delegationofdecisionmakingauthority

D. 

Diversityofforeignoperations

6.

Whiletherearemanyadvantagesofdecentralization,whatisthemajordisadvantageofdecentralizedorganizations?

A. 

Manageabilityofmultipledivisionsinbothdomesticandinternationaloperations

B. 

Possibleconflictbetweendivisionmanagers'decisionsandgoalsoftheorganization

C. 

Makingtimelyoperatingdecisions

D. 

Alloftheabove

7.

Whatisgoalcongruence?

A. 

Makingthegoalsofindividualmanagersthesameascorporategoals

B. 

Equatingmanagerialgoalstocorporategoals

C. 

Aligningmanagerialgoalswithcorporategoals

D. 

Givingmanagerscompleteautonomytomakedecisions

8.

Howisgoalcongruenceachievedindecentralizedorganizations?

A. 

Forcingmanagerstotakeoncorporategoalsastheirpersonalgoals

B. 

Creatingincentivesformanagerstomakedecisionsthatareconsistentwithcorporategoals

C. 

Settingpoliciesthatdirectmanagersinthewaydecisionsshouldbemade

D. 

Eliminatingtheauthorityfordivisionalmanagerstomakeoperatingdecisions

9.

Amultinationalcorporationmayattempttominimizethetaxesitpaysinacountrywithahigheffectivetaxratebysettingaveryhightransferpriceongoodstransferredtoasubsidiaryinahigh-taxcountry.Whyisthisoftennotsuccessful?

A. 

Lawsintheforeigncountrymayprohibitsuchascheme.

B. 

Thehightransferpricewouldactuallyincreasetaxes.

C. 

Foreignexchangelosseswilleliminateanytaxsavings.

D. 

Noneoftheabove

10.

Inarecentsurvey,whatissuedid30%percentofrespondentsidentifyasthemostimportantinternationaltaxissuetheyface?

A. 

Foreigncurrencytranslationoftaxableincome

B. 

Doubletaxation

C. 

Transferpricing

D. 

Withholdingtaxes

11.

Whatistheprimarydifficultyofusingmarket-basedtransferpricesforintercompanytransactions?

A. 

Marketsthataretoocomplex

B. 

Lackofawell-developedmarket

C. 

Lackofobjectivity

D. 

Operatinginefficienciesaretransferredfromonesubsidiarytoanother

12.

Whatistheprimaryadvantageofanegotiatedtransferprice?

A. 

Itisobjectivelydetermined.

B. 

Itreflectsmanagers'abilitytocontrolcost.

C. 

Itisbasedonarms-lengthtransactionswithunrelatedparties.

D. 

Itpreservesmanagerialautonomytomakedecisions.

13.

Whichcostwillbeminimizedbysettingalowtransferprice?

A. 

Withholdingtaxesonadownstreamtransfer

B. 

Importduties

C. 

Currencydevaluationofforeigncashflows

D. 

Alloftheabove

14.

Cost-plusmethodismostappropriatewhen:

A. 

therearecomparableuncontrolledsalesandtherelatedbuyermerelydistributesthegoodsitpurchases.

B. 

therelatedbuyeractsasasalessubsidiary.

C. 

therelatedbuyerdoesnotaddsubstantialvaluetotheproduct.

D. 

therelatedbuyerdoesmorethansimplydistributethegoodsitpurchases.

15.

AccordingtothestudypublishedbyProfessorsChanandLoin2004,whichofthefollowingvariablesisimportantwhenmarket-basedmethodsofdeterminingtransferpricesarepreferred?

A. 

Restrictionsonprofitrepatriation

B. 

Goodrelationshipwithlocalgovernment

C. 

Minimizationofimportduties

D. 

Riskofexpropriationandnationalization

16.

Whenatransferpriceissetbythemanagementofaparentcompanyratherthanbythesubsidiarymanagers,whatkindoftransferpriceisbeingused?

A. 

Market-basedtransferprice

B. 

Negotiatedtransferprice

C. 

Discretionarytransferprice

D. 

Cost-basedtransferprice

17.

SubsidiaryX,locatedinacountrywitha25%corporateincometaxrate,andSubsidiaryY,locatedinacountrywitha35%corporateincometaxratearepartofadecentralizedorganization.Theyhavebeenengagedintradewithoneanotherusinganegotiatedtransferpriceof$50perunitforsalesbySubsidiaryXtoSubsidiaryY.Pipko,theparentcompanyofbothSubsidiaryXandSubsidiaryYrecentlysetadiscretionarytransferpriceof$80perunitforthetransfersbetweenXandY.Whatisadvantageofthisdecision?

A. 

NetincomeforSubsidiaryXwillincreaseby$30perunit.

B. 

Netincomeforthecorporationasawholewillincreaseby$30perunit.

C. 

Netincomeforthecorporationasawholewillincreaseby$3perunit.

D. 

NetincomeforSubsidiaryYwilldecreaseby$30perunit.

18.

SubsidiaryX,locatedinacountrywitha25%corporateincometaxrate,andSubsidiaryY,locatedinacountrywitha35%corporateincometaxratearepartofadecentralizedorganization.Theyhavebeenengagedintradewithoneanotherusinganegotiatedtransferpriceof$50perunitforsalesbySubsidiaryXtoSubsidiaryY.Pipko,theparentcompanyofbothSubsidiaryXandSubsidiaryYrecentlysetadiscretionarytransferpriceof$80perunitforthetransfersbetweenXandY.Howwillsubsidiarymanagersinthedecentralizedorganizationviewthisdecisionbyparentcompanymanagement?

A. 

Theywillembraceitwhole-heartedlybecausecorporateprofitswillincrease.

B. 

ThemanagerofSubsidiaryYwillbeconcernedaboutthedeclineinSubsidiaryY'sprofitandtheeffectthiswillhaveonhis/herbonus.

C. 

Theywon'tmindbecausetheintercompanytransactionwillstilloccur.

D. 

Theywon'tnoticebecausealldecisionsinthedecentralizedorganizationaremadebytheparent.

19.

Whatistheprimaryproblemwithusingdiscretionarytransferpricestominimizecostsinadecentralizedorganization?

A. 

Theydon'treallyminimizetaxcosts.

B. 

Theappropriatetransferpricetominimizecostscannotbedeterminedbytheparentcompany.

C. 

Thebenefitsofdecentralizationmaybelost.

D. 

Theyareextremelydifficulttoadminister.

20.

Howcantheconflictbetweencostminimizationandperformanceevaluationbeovercomeinadecentralizedorganization?

A. 

Dualtransferpricingsystems

B. 

Market-basedtransferpricingsystems

C. 

Cost-basedtransferpricingsystems

D. 

Negotiatedtransferpricingsystems

21.

Withholdingtaxesondividendspaidbyaforeignsubsidiarytoaparentcanbereducedby:

A. 

raisingpricespaidbytheparentforgoodsitacquiresfromthesubsidiary.

B. 

raisingpricespaidbythesubsidiaryforgoodsitacquiresfromtheparent.

C. 

negotiatedtransferpricing.

D. 

reducingpriceschargedbytheparentforgoodtransferredtothesubsidiary.

22.

Whatisanadvaloremimportduty?

A. 

Arequirementthataparentbuystheoutputofaforeignsubsidiary

B. 

Atariffchargedbyagovernmentontheinvoicepriceofgoodscomingintoitscountry

C. 

Arequirementthatasubsidiaryacquiresitsmaterialinputsfromaforeignparent

D. 

Ataxchargedonintercompanytransactions

23.

Whichofthefollowingisareasonforaparenttousediscretionarytransferprices?

A. 

Improvecompetitivepositionofforeignoperation

B. 

Minimizeimportduties

C. 

Avoidrestrictionsonrepatriationofprofits

D. 

Alloftheabove

24.

Whichofthefollowingstatementsistrueaboutapplyingthearm's-lengthstandardfortransferpricing?

A. 

Auniquetransferpricewillbeobjectivelydeterminedusingthearm's-lengthconcept.

B. 

Sincearangeoftransferpriceswouldconformtothearm's-lengthconcept,taxpayerscanminimizetaxesbychoosingatransferpriceatoneendoftherange.

C. 

Thearm's-lengthconceptisacceptedworldwideastheoptimaltransferpricingmodel.

D. 

Purchasingdivisionspreferthearm's-lengthstandardfortransferpricingoveralternativemethods.

25.

WhatisthegeneralruleforinternationaltransferpricingadvocatedbytheOrganizationforEconomicCooperationandDevelopment（OECD）?

A. 

Cost-basedprices

B. 

Negotiatedprices

C. 

Arm's-lengthprices

D. 

Discretionaryprices

26.

WhatpowerisgiventotheInternalRevenueService（IRS）undercodesection482?

A. 

Powertoeliminateintercompanytransactions

B. 

Authoritytoauditinternatio