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    Comparable sales method, valuable trademark & unrelated distributors

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    1. USM, a US manufacturing corporation, sells electrical gizmos to foreign distribution subsidiaries and to unrelated foreign distributors. The terms of sale are substantially the same except that the price charged to subsidiaries is a delivered price, while the price charged to unrelated distributors is FOB USM's factory. Is the comparable sales method applicable in this case?

    2. Would your answer in Problem 1 change if the sole difference was that USM affixes its valuable trademark to electrical gizmos sold to its subsidiaries, but not to unrelated distributors?

    3. Would your answer in Problem 1 change if the sole difference was that subsidiaries resold to European customers while the unrelated distributors sold in Asia?

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    Solution Preview

    Question 1
    First, the comparable sales method is the valuation of a transaction based on the price of a similar transaction. As regards the case, this method is NOT applicable as both situations are not similar. It is likely that USM sells the electrical gizmos to its foreign ...

    Solution Summary

    This solution discusses how applicable the comparable sales method is in the case of USM, their valuable trademark and their unrelated distributors.