Tiffany and Carlos decided to liquidate their jointly owned the corporations, ro

Question

Tiffany and Carlos decided to liquidate their jointly owned the corporations, royal oak furniture. After liquidating it’s remaining Evan Tori and paying off with remaining liabilities, are ROF had the following tax accounting balance sheet Tiffany and Carlos decided to liquidate their jointly owned the corporations, royal oak furniture. After liquidating it’s remaining Evan Tori and paying off with remaining liabilities, are ROF had the following tax accounting balance sheet Spartan Corporation manufactures quidgets at its plant in Sparta, Michigan Spartan sells its quidgets to customers in the United States, Canada, England, and Australia. Spartan markets its products in Canada and England through branches in Toronto and London, respectively. Title transfers in the United States on all sales to U.S customers and abroad (FOB: destination) on all sales to Canadian and English customers. Spartan reported total gross income on U.S. sales of $11,200,000 and total gross income on Canadian and U.K. sales of $5,600,000, split equally between the two countries. Spartan paid Canadian income taxes of $672,000 on its branch profits in Canada and U.K. inco taxes of $784,000 on its branch profits in the U.K. Spartan financed its Canadian operations through a $12 million capital contributi which Spartan financed through a loan from Bank of America. During the current year, Spartan paid $720,000 in interest on the loa Spartan sells its quidgets to Australian customers through its wholly-owned Australian subsidiary. Title passes in the United States (FOB: shipping point) on all sales to the subsidiary, Spartan reported gross income of $2.130,000 on sales to its subsidiary during year. The subsidiary paid Spartan a dividend of $763,800 on December 31 (the withholding tax is O percent under the U.S- Austral treaty). Spartan was deemed to have paid Australian income taxes of $376,200 on the income repatriated as a dividend. Refer Requirement: a. Compute Spartan's foreign source gross income and foreign tax (direct and withholding) for the current year b. Assume 20 percent of the interest paid to Bank of America is allocated to the numerator of Spartan's FTC limitation calculation Compute Spartan Corporation's FTC limitation using your calculation from question a and any excess FTC or excess FTC limitat (all of the foreign source income is put in the general category FTC basket). (Enter your answers in dollars not in millions of dollars. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req A Req 8 Assume 20 percent of the interest paid to Bank of America is allocated to the numerator of Spartan's FTC limitation calculation. Compute Spartan Corporation's FTC limitation using your calculation from question a and any excess FTC or excess FTC limitation (all of the foreign source income is put in the general category FTC basket). (Do not round intermediate calculations Show lessA FTC limitation 376,200 Excess FTC 376,200

Explanation / Answer

a.
Foreign source gross income on canadian sales =             
                                                                               $14,00,000
Foreign source gross income on U.k sales = $14,00,000
Dividend from Australian subsidiary = $7,63,800
§78 gross-up for deemed paid income = $3,76,200

Foreign source gross income= $39,40,000

Creditable foreign income taxes
Canadian income taxes =                         $6,72,000
U.K income taxes =                                    $7,84,000
Deemed paid credit on Australia dividend = $3,76,200
Total Creditable income taxes = $18,32,200

Note -
Under §863(b), 50 percent of the gross income from sales is foreign source because title to the goods passes outside the United States.

b.

Gross income from US sales =                  $11,200,000
Gross income from Canada and UK sales = $56,00,000
Gross income from Australia sales =           $21,30,000
Dividend from Australia subsidiary=             $7,63,800
S78 gross-up income =                                    $3,76,200
Total gross income =                                        $20,070,000
Interest expense=                                           $7,20,000
Taxable income=                                                $19,350,000

US tax rate=                                                     0.35
Precredit US tax$ =                                          $6,772,500

FTC limitation
Foreign source gross income (from A above) $ 39,40,000Less: Apportioned interest expense (20%)      $144,000
Foreign source taxable income                         $ 3,796,000
Taxable income                                              $ 19,350,000
FTC limitation = $3,796,000/ $19,350,000 x $6,772,500
                                                                   =$1,328,600
Creditable foreign income taxes=         $18,32,200                                               
Excess foreign income tax credit=         $5,03,60

Precredit U.S. income tax =                    $6,772,500         
Foreign tax credit =                                  $1,328,600
Net U.S income tax =                                  $5,443,900

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.