Expenses

4,160

2,960

Additional assumptions are as follows: (1) the parent owes the subsidiary $70; (2) the parent owns 100 percent of the subsidiary; (3) during the year, the subsidiary paid the parent a dividend of $250; (4) the subsidiary owns the building that the parent rents for $200; and (5) during the year, the parent sold some inventory to the subsidiary for $2,200, whose cost was $1,500 to the parent, and in turn, the subsidiary sold the inventory to an unrelated party for $3,200.

(a) What is the parent's unconsolidated net income?

(b) What is the subsidiary's net income?

(c) What is the consolidated profit on the inventory that the parent originally sold to the subsidiary?

(d) What are the amounts of the following items, on a consolidated basis?

• accounts receivables

• accounts payable

• dividend income

• retained earnings.

3 Assume that: (a) a multinational corporation has $1,000 of foreign income; (b) the foreign country's tax rate is 40 percent; and (c) the domestic tax rate is 50 percent. What is the domestic tax liability?

4 Assume that: (a) a multinational corporation has $1,000 of foreign income; (b) the foreign country's tax rate is 50 percent; and (c) the domestic tax rate is 50 percent. The multinational company can treat any foreign tax paid directly as a deductible expense or as a tax credit. What are the effective tax rates of the multinational corporation under the credit and the deduction?

5 A US company has $100 of foreign income earned in Belgium. Assume that the US tax rate is 35 percent and the Belgium tax rate is 33 percent. Demonstrate the difference in US tax liability that arises from double taxation, a tax deduction, and a tax credit.

6 Assume a value-added tax of 10 percent. What would be the selling price and taxes at each stage if the following were the values added?

Seller |
Value added by seller |

Extractor |
$300 |

Processor |
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