FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Trans Atlantic Metals has two operating divisions. Its forging operation in Finland forges raw metal, cuts it, and
then ships it to the United States where the company's Gear Division uses the metal to produce finished gears.
Operating expenses amount to $20.6 million in Finland and $60.6 million in the United States exclusive of the
costs of any goods transferred from Finland. Revenues in the United States are $156 million.
If the metal were purchased from one of the company's U.S. forging divisions, the costs would be $30.6 million.
However, if it had been purchased from an independent Finnish supplier, the cost would be $40.6 million. The
marginal income tax rate is 60 percent in Finland and 40 percent in the United States.
Required:
What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing
scenarios ($30.6 million and $40.6 million)? (Enter your answers in dollars and not in millions of dollars.)
Total tax liability
Transfer price
30.6 million
40.6 million
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Transcribed Image Text:Trans Atlantic Metals has two operating divisions. Its forging operation in Finland forges raw metal, cuts it, and then ships it to the United States where the company's Gear Division uses the metal to produce finished gears. Operating expenses amount to $20.6 million in Finland and $60.6 million in the United States exclusive of the costs of any goods transferred from Finland. Revenues in the United States are $156 million. If the metal were purchased from one of the company's U.S. forging divisions, the costs would be $30.6 million. However, if it had been purchased from an independent Finnish supplier, the cost would be $40.6 million. The marginal income tax rate is 60 percent in Finland and 40 percent in the United States. Required: What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($30.6 million and $40.6 million)? (Enter your answers in dollars and not in millions of dollars.) Total tax liability Transfer price 30.6 million 40.6 million
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