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Transfer Prices and GAAP

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a) What is a transfer price?
b) How can firms use transfer prices strategically?
c) What role does GAAP play in how firms determine transfer prices?

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Solution Summary

This solution explains what transfer prices are and how firms can use transfer prices strategically. The role that GAAP plays in transfer price determination is also discussed.

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A transfer price is the price at which parties related to each other buy and sell goods and services. This is an internal sale. For example, division A sells their products to division B, all within the same company. This is most often conducted in different countries, whereas division A is located in the U.S. and division B is located in China, Mexico, or some other country. When a company buys its own goods for other ...

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