Tio, Inc. a U.S. parent owns two subsidiaries, Ecuador Inc. and Taiwan Inc. The corporate tax rate is 20% in Ecuador and 40% in Taiwan. It costs Ecuador Inc. $25 to assemble each widget. Ecuador Inc. sells all 1,000 widgets of its production to Taiwan Inc. at a negotiated price of $65 per unit. Taiwan Inc. sold all 1,000 widgets to independent customers for $90 per unit. What will the overall tax rate be if Tio instructed Ecuador to increase the price it charged Taiwan for each widget to $80 per unit?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Tio, Inc. a U.S. parent owns two subsidiaries, Ecuador Inc. and Taiwan Inc. The corporate tax rate is 20% in Ecuador and 40% in Taiwan. It costs Ecuador Inc. $25 to assemble each widget. Ecuador Inc. sells all 1,000 widgets of its production to Taiwan Inc. at a negotiated price of $65 per unit. Taiwan Inc. sold all 1,000 widgets to independent customers for $90 per unit. What will the overall tax rate be if Tio instructed Ecuador to increase the price it charged Taiwan for each widget to $80 per unit?

 

a. 25% b. 28% c. 21% d. 23.08%

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