inbound taxation questions

True / False Questions

1. Service revenue is sourced based on the location in which such services are rendered.
2. Income tax treaties can generally only result in an increase in the amount of U.S. tax due.
3. The purpose of the foreign tax credit is to reduce international double taxation.
4. Under present law, a trust is considered a US person only if a US court has primary supervision over the trust’s administration and US persons have the authority to control all substantial decisions of the trust.
5. Fixed or determinable, annual or periodical income from foreign sources is subject to Internal Revenue Code section’s 1441 and 1442.

The global average carbon footprint is 4 metric tons per person. Why do you think the US has a much higher average carbon footprint per person?

The average world temperature has increased by 2 degrees fahrenheit over the last 140 years. Experts predict the average world temperature could increase by another 2-10 degrees fahrenheit by the year 2100. What are 3 possible consequences that could result from this warming?

The US has one of the highest carbon footprints per capita in the world. What are 3 ways the US could reduce carbon emissions?

The current pandemic crisis caused a depreciation of Canadian dollar compared to the US dollar. The exchange rate increased from US$1 = C$1.30 in February to US$1 = C$1.40 in May.

1. a) If you want to explain this increase in the exchange rate with the changes in the Canadian interest rate. What would be your interpretations? Did the Central Bank in Canada cut the interest or increase it? And how that can affect the rise in the exchange rate?

2. b) What is the implication of your answer in (a) for the Canadian bond’s price? Write down the equation for the price of bond and explain how your result in (a) can affect the price of bond?

President Calvin Coolidge once exclaimed that "the business of the United States IS business." When considering life in the US today, one cannot deny the observation. Even education and prison has become a business industry. The business-oriented nature of the US did not happen overnight and goes back to the very origins of the US. Considering this, (a) explain the origins of the original two colonies, Jamestown and Plymouth. Explain how they fulfilled mercantilist objectives on the part of the English Crown. Also, (b) how did African slavery originate from business purposes? Finally, (c) how was the Civil War a result of economic factors regarding industrialization and slavery?

The Table below provides quotes from three Banks A,B, and C for the British Pound in U.S. dollars (A), the US dollar in Euros (B) and the British Pound in Euros (C).

Bid price Ask price

A - USD/POUND 1.4871 1.4900

B - EURO/USD 0.8794 0.8852

C - EUR/POUND 1.3050 1.3062

(a) Calculate the appropriate EUR/POUND bid and -ask cross exchange rates.

(b) Give your answers to (a), which currency is overvalued? Explain your answer.

(c) Assuming no other trading costs, explain if there are arbitrage opportunities for a US dealer with US$800,000. If there are no arbitrage opportunities explain why.

Trophies R Us manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month; current monthly production is 7,500 medals. The company normally charges $225 per medal. Variable costs and fixed costs for the current activity level of 75% follow:

Trophies R Us has just received a special one-time order for 2,500 medals at $115 per medal. For this particular order, no variable marketing costs will be incurred. As a management accountant with Trophies R Us, you have been assigned the task of analyzing this order and recommending whether the company should accept or reject it..

1) Calculate both the old (i.e., prior to the special order) average cost per unit and the recalculated average cost per unit, including the effect of the special sales order. Are either of these two figures relevant for evaluating whether to accept or reject the special order? Explain.

2) Based on a short-term financial analysis, determine if Trophies R Us Co. should accept the special order and why.

3) What is the breakeven selling price per unit for the special sales order?

4) Discuss at least three other considerations that you should include in your analysis of the special order.

Homes for Sale

The dataset HomesForSale has data on houses available for sale in three Mid-Atlantic states (NY, NJ, and PA). Table 1 shows the mean and standard deviation from the three Mid-Atlantic states, in thousands of dollars. Use this table, the knowledge that within the US the average house sells for about 265 thousand dollars¹, and a 5% significance level to answer the following questions.

Table 1 Mean housing prices for New York, New Jersey, and Pennsylvania


Click here for the dataset associated with this question.


¹According to the US Census in April 2011.

(a) Test whether the average cost of a house in New York is significantly greater than the US average.

Give the test statistic and the p-value.

Round your answer for the test statistic to two decimal places and your answer for the p-value to three decimal places.

test statistic = Enter your answer in accordance to item (a) of the question statement

p-value = Enter your answer in accordance to item (a) of the question statement

Is the average cost of a house in New York significantly greater than the US average?

(b) Test whether the average cost of a house in New Jersey is significantly greater than the US average.

Give the test statistic and the p-value.

Round your answer for the test statistic to two decimal places and your answer for the p-value to three decimal places.

test statistic = Enter your answer in accordance to item (b) of the question statement

p-value = Enter your answer in accordance to item (b) of the question statement

Is the average cost of a house in New Jersey significantly greater than the US average?

Choose the answer from the menu in accordance to item (b) of the question statement                                                                      YesNo

(c) Test whether the average cost of a house in Pennsylvania is significantly greater than the US average.

Give the test statistic and the p-value.

Round your answer for the test statistic to two decimal places and your answer for the p-value to three decimal places.

test statistic = Enter your answer in accordance to item (c) of the question statement

p-value = Enter your answer in accordance to item (c) of the question statement

Is the average cost of a house in Pennsylvania significantly greater than the US average?

Choose the answer from the menu in accordance to item (c) of the question statement                                                                      YesNo

(d) Which state shows the most evidence that the state average is greater than the US average?

New York

New Jersey

Pennsylvania

George Young Industries (GYI) acquired industrial robots at the beginning of 2018 and added them to the company’s assembly process. During 2021, management became aware that the $2.8 million cost of the equipment was inadvertently recorded as repair expense on GYI’s books and on its income tax return. The industrial robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method for financial reporting purposes and for tax purposes it is considered to be MACRS 7-year property. Cost deducted over 7 years by the modified accelerated recovery system as follows:

The tax rate is 25% for all years involved.

Required:
1. & 3. Prepare any journal entry necessary as a direct result of the error described and the adjusting entry for 2021 depreciation.
2. Will GYI account for the change (a) retrospectively or (b) prospectively?

n July 2007, Apple released the iPhone at a price of $599. Only two months later, the company dropped the price by 33% to $399. The early iPhone customers were angry about the sudden drop in price and felt they had overpaid for the product. See the letter below that Steve Jobs wrote to these customers. not surprisingly, members of the news media received the message and shared it with the general public.

INSTRUCTIONS: Write a clear and concise assessment of whether or not you think this is an effective business communication. Provide support for your answer. Organize your response into a clear introduction, body, and conclusion. Use the appropriate format for business writing.

***

Letter from Steve Jobs

To All iPhone Customers:

I have received hundreds of emails from iPhone customers who are upset about Apple dropping the price of the iPhone by $200 two months after it went on sale. After reading every one of these emails, I have some observations and conclusions.

First, I am sure that we are making the correct decision to lower the price of the 8GB iPhone from $599 to $399, and that now is the right time to do it. iPhone is a breakthrough product, and we have the chance to "go for it" this holiday season. iPhone is so far ahead of the competition, and now it will be affordable by even more customers. It benefits both Apple and every iPhone user to get as many new customers as possible in the iPhone "tent." We strongly believe the $399 price will help us do just that this holiday season.

Second, being in technology for 30+ years I can attest to the fact that the technology road is bumpy. There is always change and improvement, and there is always someone who bought a product before a particular cutoff date and misses the new price or the new operating system or the new whatever. This is life in the technology lane. If you always wait for the next price cut or to buy the new improved model, you'll never buy any technology product because there is always something better and less expensive on the horizon. The good news is that if you buy products from companies that support them well, like Apple tries to do, you will receive years of useful and satisfying service from them even as newer models are introduced.

Third, even though we are making the right decision to lower the price of iPhone, and even though the technology road is bumpy, we need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price. Our early customers trusted us, and we must live up to that trust with our actions in moments like these.

Therefore, we have decided to offer every iPhone customer who purchased an iPhone from either Apple or AT&T, and who is not receiving a rebate or any other consideration, a $100 store credit towards the purchase of any product at an Apple Retail Store or the Apple Online Store. Details are still being worked out and will be posted on Apple's website next week. Stay tuned. We want to do the right thing for our valued iPhone customers.

We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple.

Steve Jobs

Apple CEO

Louise Wuitton (LW) is a New Zealand-based fashion label which specialises in creating luxury garments for both men and women. LW sources fabrics and other items for their garments locally, and the garments are made in a workroom in Auckland by a team of tailors and seamstresses who are paid at least the standard living wage of $22.10 per hour, depending on their experience. LW commenced operations in 2015, and since then, the company has gained a strong reputation in the marketplace for producing high-quality, fashion-forward clothing at a reasonable price. They have also been recognised as one of New Zealand’s top employers, based on their policies around safe working conditions, employee well-being, and above average hourly wages. Their strong reputation has contributed to growing revenue since 2015, and in the last financial year, the company reported its best ever earnings performance. In the last 18 months, a number of overseas competitors have entered the New Zealand marketplace. These competitors are able to produce similar clothing designs to LW at a much lower cost, given the differences in the cost of labour and materials in the overseas factories. Additionally, the impact of COVID-19 has resulted in lower than anticipated revenue for LW for the first half of the 2020 financial year, and the senior management team anticipates that the situation is likely to deteriorate further unless the company can find a way to cut their costs of production in order to remain competitive. If cost savings cannot be found, the company risks becoming insolvent in the next two years. The company’s CEO believes that the best option for LW is to outsource the manufacturing of their garments to a third-party company located in Bangladesh. This would drastically reduce the costs associated with production, as the standard wages paid in the garment industry in Bangladesh are much lower than those paid by LW in New Zealand. Additionally, the thirdparty manufacturer would be able to source cheaper fabrics from which to make the garments. There are differing views among the other members of the senior management team – some agree that this proposal seems like the best course of action for LW. However, other members of the senior management team are concerned that outsourcing production to Bangladesh would harm the company’s brand image and reputation, resulting in further deterioration of the company’s bottom line in the long-term. Among their concerns, they cite the well-known poor working conditions associated with the garment manufacturing industry in Bangladesh, the low wages paid to the workers in the factories there (who tend to be poorer women and girls with no skills or training that would enable them to obtain better employment elsewhere), and the possible negative environmental consequences of producing clothing using cheaper fabrics.

Required: Use the ethical decision-making framework discussed in lectures to evaluate the ethical dilemma in the above scenario, AND issue a recommendation to the senior management team of Louise Wuitton (LW) based on your evaluation.