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Accounting problems




Question;Submit your responses to the;following 4 problems in a single Microsoft Word Document. Make sure that you;clearly label each problem/part.;Problems;1. In each of the following independent;situations involving transfers of tangible property, determine which transfer;pricing methods applies and compute a transfer price using the appropriate;method. Show all of your computations.;a.Dougco, a domestic corporation, owns;100% of Thaico, a Thailand corporation. Dougco manufactures top-of-the-line;offi ce chairs at a cost of $300 per unit and sells them to Thaico, which;resells the goods (without any further processing) to unrelated foreign;customers for $450 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 Dougco;b.Clairco, a domestic corporation;owns 100% of Shuco, a foreign corporation that manufactures women?s running;shoes at a cost of $30 each and sells them to Clairco. Clairco attaches its;trade name to the shoes (which has a significant effect on their resale price);and resells them to unrelated customers in the United States for $80 each.;Independent foreign manufacturers producing similar running shoes typically;earn a gross profit mark-up (expressed as a percentage of the manufacturing;costs) of 15%.;c. Tomco, a domestic corporation, owns;100% of Swissco, a Swiss corporation. Tomco manufactures riding lawn mowers at;a cost of $2,500 per unit, and sells them to unrelated foreign distributors at;a price of $3,750 per unit. Tomco also sells the equipment to Swissco, which;then resells the goods to unrelated foreign customers for $4,250 each. The;conditions of Tomco?s sales to Swissco are essentially equivalent to those of;the sales made to unrelated foreign distributors.;2. USAco, a domestic corporation, forms;a Canadian subsidiary, CANco, to distribute USAco?s widgets in Canada. USAco;sells widgets to CANco for resale in Canada, provides CANco with USAco?s unique;distribution software, and provides the use of USAco?s collections staff to;collect receivables from delinquent accounts.;What are the intercompany transactions that USAco must price;at arm?s length?;What compliance techniques may USAco employ to minimize the;risk of a transfer pricing penalty?;3. Erica is a citizen of a foreign;country, and is employed by a foreign-based computer manufacturer. Erica?s job;is to provide technical assistance to customers who purchase the company?s;mainframe computers. Many of Erica?s customers are located in the United;States. As a consequence, Erica consistently spends about 100 working days per;year in the United States. In addition, Erica spends about 20 vacation days per;year in Las Vegas, since she loves to gamble and also enjoys the desert;climate. Erica does not possess a green card. Assume that the United States has;entered into an income tax treaty with Erica?s home country that is identical;to the United States Model Income Tax Convention of November 15, 2006.;How does the United States tax Erica?s activities?;How would your answer;change if Erica were a self-employed technician rather than an employee?;4. Finco is a wholly owned Finnish;manufacturing subsidiary of Winco, a domestic corporation that manufactures and;markets residential window products throughout the world. Winco has been;Finco?s sole shareholder since Finco was organized in 1990. At the end of the;current year, Winco sells all of Finco?s stock to an unrelated foreign buyer;for $25 million. At that time, Finco had $6 million of post-1986 undistributed;earnings, and $2 million of post-1986 foreign income taxes that have not yet;been deemed paid by Winco. Winco?s basis in Finco?s stock was $5 million;immediately prior to the sale.;Assume Winco?s capital gain on the sale of Finco?s stock is;not subject to any foreign taxes, and that the U.S. corporate tax rate is 35%.;What are the U.S. tax consequences of this sale for Winco?;Now assume that instead of selling the stock of Finco, Winco;completely liquidates Finco, and receives property with a market value of $25;million in the transaction. As in the previous scenario, at the time of the;liquidation, Finco had $6 million of accumulated earnings and profi ts, and $2;million of foreign income taxes that have not yet been deemed paid by Winco.;Assume that Winco?s basis in Finco?s stock was $5 million immediately prior to;the liquidation, and that the U.S. corporate tax rate is 35%. What are the U.S.;tax consequences of this liquidation for Winco?


Paper#41448 | Written in 18-Jul-2015

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