PART A

Multinational transfer pricing, global tax minimisation

Derwent Ltd manufactures telecommunications equipment at its plant in Geelong. The
company has marketing divisions throughout the world. A Derwent Ltd marketing division in
Dallas, USA, imports 10 000 units of product B12 from Australia. The following information is
available:

Suppose that the Australian and US tax authorities only allow transfer prices that are between
the full manufacturing cost per unit of $800 and a market price of $950, based on comparable
imports into the USA. The US import duty is charged on the price at which the product is
transferred into the USA. Any import duty paid to the US authorities is a deductible expense
for calculating US income taxes due.

Required

1. Calculate the after-tax operating profit earned by the Australian and US divisions from
transferring 10 000 units of product B12: (a) at full manufacturing cost per unit and
(b) at market price of comparable imports. (Income taxes are not included in the
calculation of the cost-based transfer prices.)

2. Which transfer price should Derwent Ltd select to minimise the total of company
import duties and income taxes? Remember that the transfer price must be between
the full manufacturing cost per unit of $800 and the market price of $950 of
comparable imports into the USA. Explain your reasoning.

PART B

Multinational transfer pricing, goal congruence (continuation of PART A)

Suppose that the Australian division could sell as many units of product B12 as it makes at

$900 per unit in the US market, net of all marketing and distribution costs.

Required

1. From the viewpoint of Derwent Ltd as a whole, would after-tax operating profit be maximised if it sold the 10 000 units of productB12 in Australia or in the USA? Show your calculations.

2. Suppose that division managers act autonomously to maximise their division’s aftertax operating profit. Will the transfer price calculated in requirement 2 of Scenario 1a) result in the Australian division manager taking the actions determined to be optimal in requirement 1 of this exercise? Explain

3. What is the minimum transfer price that the Australian division manager would agree to? Does this transfer price result in Derwent Ltd as a whole paying more import duty and taxes than in the answer to requirement 2 of Scenario 1a)? If so, by how much?

Imagine you are the assistant controller in charge of general ledger accounting at Linbarger Company. Your company has a large loan from an insurance company. The loan agreement requires that the company’s cash account balance be maintained at $200,000 or more, as reported monthly. At June 30, the cash balance is $80,000. You give this update to Lisa Infante, the financial vice president. Lisa is nervous and instructs you to keep the cash receipts book open for one additional day for purposes of the June 30 report to the insurance company. Lisa says, “If we don’t get that cash balance over $200,000, we’ll default on our loan agreement. They could close us down, put us all out of our jobs!” Lisa continues, “I talked to Oconto Distributors (one of Linbarger’s largest customers) this morning. They said they sent us a check for $150,000 yesterday. We should receive it tomorrow. If we include just that one check in our cash balance, we’ll be in the clear. It’s in the mail!”

Questions

What is the accounting problem that the Linbarger Company faces?

What are the ethical considerations in this case? Provide rationale for why these are ethical considerations.

What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance?

Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.

What is one alternative that you could pursue in this scenario? Support your recommendations with information you learned in this class.

This case was provided by Pro- fessor Daniel Purdy, Assistant Director of the MBA Program, and Professor Wendy Wilhelm, Professor of Marketing, both of Western Washington University.

The College of Business at Western Washington University is a full-service business school at a midsized regional university. The College of Business special- izes in undergraduate business education with selected gradu- ate programs. While the College emphasizes mostly professional education, it does so within a

offerings, such as the highly suc- cessful Manufacturing and Sup- ply Chain Management degree.

The College is commit-
ted to a student-centered style
of education that emphasizes
the students not as customers
but as equal stakeholders in the
process of education. As part
of its commitment to involving
the students as true partners,
the College has recently begun
the process of conducting focus
groups of undergraduate and
graduate students. The objec-
tive of these focus groups is to
identify negative and positive attitudes about the College and develop new ideas to improve the College.

liberal arts context. Business majors range from standards such as Accounting, Marketing, and Finance to more unique

The following is an excerpt from the transcript of the first undergraduate focus group. This group included 14 stu- dents with the following makeup: 50% male and 50% female; 93% work part-time or more, and 7% do not work; and 29% management majors, with other majors no more than 15%.

Moderator: So what do you guys think are some ways that the College (not the University) can be improved? Jeff: I really like the fact that professors are accessible, willing to help and a lot of them let us call them by their first name. Something that I think could be better is that we don’t spend enough time learning how to do things but in- stead professors spend too much time talking about theory. Sarah: Yea, Yea, I agree totally. It seems like most of the time we aren’t learning practical skills but just talking about what we “should” do, not really learning how to do it. Moderator: Interesting points, how would you suggest the College try to increase the amount of practical learning? Todd: It would really be cool if we could do more real-life professional work in our classes. Things like skill-based projects that focus on doing what we would really do in our profession.

Tim: I think we should all have to do a mandatory intern- ship as part of our major. Right now, some majors let you do it as an elective but they are really hard to find and get. Moderator: Good ideas. Are there other things you think we could improve?

Rhonda: I agree that the professors try really hard to be open to students but the advising is really not very good, I don’t know how to fix it but I know my advisor is pretty much useless.

Ariel: I know, I know. It is so frustrating sometimes. I go to my advisor and she tells me to just fill in my degree

planning sheet and she’ll sign it. It’s like they don’t even know what I should be taking or why.
Jon: My advisor is kind of funny, he just tells me that he doesn’t really know that much about classes he doesn’t teach and my guess is as good as his. At least he’s honest anyway. Moderator: Ok, Ok, so the advising you are getting from the faculty leaves a little to be desired. What do you guys do to figure out how to plan your degrees if your advisors aren’t helping much?

Sarah: I just ask my friends who are further along in the major than I am.
Mark: Yea, me too. In the Student Marketing Association we all give each other advice on what professors are good, what classes go good together, which have prerequisites and stuff like that. It would be cool if we could have some- thing like that for the whole college.

Moderator: Don’t you think CBE could be improved if we developed some sort of Peer-Advising Program?

Using these excerpts as representative of the entire focus group transcript, answer the following questions:

1. Do you think focus groups were the appropriate research method in this case, given the research objectives? What other type(s) of research might provide useful data?

2. Evaluate the questions posed by the moderator in light of the research objectives/question: (a) Are any of them leading or biased in any way? (b) Can you think of any additional questions that could/should be included?

3. Examine the findings. How is CBE perceived? What are its apparent strengths and weaknesses?

4. Can we generalize these findings to all of the College’s students? Why or why not?

Stein Books Inc. sold 1,900 finance textbooks for $250 each to High Tuition University in 20X1. These books cost $210 to produce. Stein Books spent $12,200 (selling expense) to convince the university to buy its books.

Depreciation expense for the year was $15,200. In addition, Stein Books borrowed $104,000 on January 1, 20X1, on which the company paid 12 percent interest. Both the interest and principal of the loan were paid on December 31, 20X1. The publishing firm's tax rate is 30 percent.

Did Stein Books make a profit in 20X1? Please verify with an income statement.

2. (LESSEE ENTRIES FOR AN OPERATING LEASE).

Assume that Ace Leasing Company and King Company, a lessee, agreed to the lease shown below instead on the one shown in problem 1.

Commencement of Lease Date January 1, 2020

Annual lease payment due at the beginning of the year beginning with January 1, 2020 $137,171

Lease term 6 years

Economic life of leased equipment 10 years

Fair Value of asset at January 1, 2020 $950,000

Lessor’s Implicit Rate 12% Lessee’s incremental borrowing rate 12%

The asset will revert to the lessor at the end of the lease term. The lessee uses straight-line amortization for all leased equipment.

A. Is this an operating or financing lease to the Lessee? Explain.

B. Compute the Lease Liability to be recorded by the Lessee at inception of the lease and compute the ROU Asset to be recorded by the Lessee at inception. Based on those complete the two Lessee entries 1/1/2020.

C. Compute the yearly Lease Expense on King Company financial statements.

D. Compute the Interest Expense for the first two years.

E. Compute the ROU Asset Amortization for the first two years.

F. Prepare the remaining entries for December 31, 2020 (the end of the first year).

On December 31, 2020, Tamarisk Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $2,200,000 note receivable by the following modifications:

Barkley pays interest at the end of each year. On January 1, 2024, Barkley Company pays $1,440,000 in cash to Tamarisk Bank.

Answer the following questions related to Tamarisk Bank (creditor).

1. Compute the loss Tamarisk Bank will suffer under this new term modification (Loss on restructuring of debt)

2. Prepare the journal entry to record the loss on Tamarisk’s books

3. Prepare the interest receipt schedule for Tamarisk Bank after the debt restructuring.

4. Prepare the interest receipt entry for Tamarisk Bank on December 31, 2021, 2022, and 2023.

5. What entry should Tamarisk Bank make on January 1, 2024?

What are the advantages and disadvantages of using interview techniques to collect data for a health needs assment program? Two paragraghs

1. Compare and contrast the purposes of an interview and an interrogation.

5. Describe the differences between an admission and a confession.

pleae help

Are hiring practices fundamentally flawed? Describe the process and steps that are necessary to attract, screen, interview and onboard today’s millennial?