Question

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 $27,200,000 and total gross income on Canadian and U.K. sales of $6,800,000, split equally between the two countries. Spartan paid Canadian income taxes of $816,000 on its branch profits in Canada and U.K. income taxes of $952,000 on its branch profits in the U.K. Spartan financed its Canadian operations through a $6 million capital contribution, which Spartan financed through a loan from Bank of America. During the current year, Spartan paid $360,000 in interest on the loan.

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 $2,190,000 on sales to its subsidiary during the year. The subsidiary paid Spartan a dividend of $804,000 on December 31 (the withholding tax is 0 percent under the U.S.- Australia treaty). Spartan was deemed to have paid Australian income taxes of $396,000 on the income repatriated as a dividend. Refer Corporate tax table.

Requirement:

Compute Spartan’s foreign source gross income and foreign tax (direct and withholding) for the current year.

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).

(Enter your answers in dollars not in millions of dollars.)

Complete this question by entering your answers in the tabs below.

Req A

Compute Spartan’s foreign source gross income and foreign tax (direct and withholding) for the current year.

Foreign source gross income
Foreign tax (creditable)

Req 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 limitation (all of the foreign source income is put in the general category FTC basket). (Do not round intermediate calculations.)

FTC limitation
Excess FTC

Answer 1

Particulars	Gross Income ($)	Tax paid($)
U.S	27200000
Canada	3400000	816000
England	3400000	952000
Australia	2190000
Dividend	804000	396000
Foreign Source	36994000	2164000
US	27200000
Passive Income	0
General Income	9794000
Taxable Income	36994000
US Tax rate	0.35
Precredit US tax	12947900
General Category FTC Limitation	9794000
Less: Apportioned Interest	129626
(97,94,000/272,00,000*360000)
	9664374