Chapter 12 - International Transfer Pricing Chapter 12 International Transfer Pricing Multiple Choice Questions 1. The monetary amount used to record intercompany transactions is called: A) exchange rate B) transfer price C) conversion rate D) incremental cost Answer: B Level: Easy LO: 1 2. What is the term used for intercompany transactions from a parent to a subsidiary? A) upstream transfer B) downstream transfer C) international transfer D) none of the above Answer: B Level: Easy LO: 1 3. What is the term used for intercompany transactions from a subsidiary to a parent? A) upstream transfer B) downstream transfer C) international transfer D) none of the above Answer: A Level: Easy LO: 1 4. In 2009, what portion of total U.S. goods trade was made up of intercompany transactions? A) 20% B) 82% C) 40% D) 11% Answer: C Level: Medium LO: 1 5. What is the primary characteristic of a decentralized organization? A) size of divisions B) number of divisions C) delegation of decision making authority D) diversity of foreign operations Answer: C Level: Medium LO: 1 12-1
Chapter 12 - International Transfer Pricing 6. While there are many advantages of decentralization, what is the major disadvantage of decentralized organizations? A) manageability of multiple divisions in both domestic and international operations B) possible conflict between division managers' decisions and goals of the organization C) making timely operating decisions D) all of the above Answer: B Level: Medium LO: 1 7. What is goal congruence? A) making the goals of individual managers the same as corporate goals B) equating managerial goals to corporate goals C) aligning managerial goals with corporate goals D) giving managers complete autonomy to make decisions Answer: C Level: Hard LO: 1 8. How is goal congruence achieved in decentralized organizations? A) forcing managers to take on corporate goals as their personal goals B) creating incentives for managers to make decisions that are consistent with corporate goals C) setting policies that direct managers in the way decisions should be made D) eliminating the authority for divisional managers to make operating decisions Answer: B Level: Medium LO: 1 9. Which of the following is a limitation of cost-based transfer pricing? A) determining which cost to use B) lack of incentive for selling division to control cost C) inefficiencies in one unit may be transferred to another unit D) all of the above Answer: D Level: Medium LO: 5 12-2
Chapter 12 - International Transfer Pricing 10. A multinational corporation may attempt to minimize the taxes it pays in a country with a high effective tax rate by setting a very high transfer price on goods transferred to a subsidiary in a high-tax country. Why is this often not successful?
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