RCO, a transnational company sets a wholly owned subsidiar ySubA in coun try X, X's income tax rate is 25%, withholding tax rate is 10%. Two choices to invest to its SubA: (A) RCo invested 1500 into SubA. (As equity investment) (B) Lend 1500 to SubA, the interest rate is 12%. (As credit investment) Assume that SubA's yearly income is 1200 and expenses are 500 before t his investment. The amount of dividend paid to RCo. is 180. Required: (1) Compute the total group's total tax burden under the above two choic es. (2) Compare the two results and then explain why there are dif érent result s of total tax in different investments. (unit: $thousand)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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RCo, a transnational company sets a wholly owned subsidiar ySubA in coun
try X, X's income tax rate is 25%, withholding tax rate is 10%.
Two choices to invest to its SubA:
(A) RCo invested 1500 into SubA. (As equity investment)
(B) Lend 1500 to SubA, the interest rate is 12%. (As credit investment)
Assume that SubA's yearly income is 1200 and expenses are 500 before t
his investment. The amount of dividend paid to RCo. is 180.
Required:
(1) Compute the total group's total tax burden under the above two choic
es.
(2) Compare the two results and then explain why there are dif érent result
s of total tax in different investments.
(unit: $ thousand)
Transcribed Image Text:RCo, a transnational company sets a wholly owned subsidiar ySubA in coun try X, X's income tax rate is 25%, withholding tax rate is 10%. Two choices to invest to its SubA: (A) RCo invested 1500 into SubA. (As equity investment) (B) Lend 1500 to SubA, the interest rate is 12%. (As credit investment) Assume that SubA's yearly income is 1200 and expenses are 500 before t his investment. The amount of dividend paid to RCo. is 180. Required: (1) Compute the total group's total tax burden under the above two choic es. (2) Compare the two results and then explain why there are dif érent result s of total tax in different investments. (unit: $ thousand)
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