Question

Lafferty Company, a U.S. based company (21% tax rate) has a branch in a foreign country,...

Lafferty Company, a U.S. based company (21% tax rate) has a branch in a foreign country, which generated 750,000 foreign currency units (FCU) of pre-tax income. The branch paid it's home country 14% income taxes evenly throughout the year. The branch repatriated 165,000 FCU of after-tax profits to Lafferty on 9/27.

Selected exchange rates for the year: 1/1 = $0.662; 9/27 = $0.633; 12/31 = $0.650; Average for the year = $0.645

Show all labeled and detailed computations for the following items:

(a) U.S. taxable income in U.S. dollars

(b) FTC allowed in U.S. (show complete decision computation)

(c) U.S. net tax liability

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Post tax profit of foreign branch = 750000 * (1-0.14)

=645000

a) US taxable income = 165000 * 0.633 = 104445

b) FTC allowed in US = post tax income of foreign branch = 165000 * 0.633 + (645000 - 165000) * 0.65

= 416445 (note: it is assumed that 165000 will be brought on 9/27 and remaining at the end of the year. However, if it is assumed that all post tax amount will be brought throughout the year, then the answer shall be as under)

645000 * 0.645 = 416025

c) US net tax liability

Under option a) 104445 * 21% = 21933.45

Under option b1) 416445 * 21% =87453.45

Under option b2) 416025 * 21% = 87365.25

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Ypsi Corporation has a precredit U.S. tax of $420,000 on $2,000,000 of taxable income in the...
Ypsi Corporation has a precredit U.S. tax of $420,000 on $2,000,000 of taxable income in the current year. Ypsi has $400,000 of foreign source taxable income characterized as foreign branch income and $150,000 of foreign source taxable income characterized as passive category income. Ypsi paid $100,000 of foreign income taxes on the foreign branch income and $30,000 of foreign income taxes on the passive category income. What amount of foreign tax credit (FTC) can Ypsi use on its U.S. tax...
Trixie Company has a foreign branch in Switzerland that earns income before income taxes of $500,000....
Trixie Company has a foreign branch in Switzerland that earns income before income taxes of $500,000. Income taxes paid to the Swiss government are $150,000 or 30%. However, Switzerland is known for their extremely high local taxes - as such, Trixie Company's branch paid $250,000 to the Swiss government for sales and other local taxes. Trixie Company must include the $500,000 of Foreign branch income in determining its home country taxable income. In determining its taxable income, Trixie Company can...
Blackwater Company has a foreign branch that earns income before income taxes of $500,000.  Income taxes paid...
Blackwater Company has a foreign branch that earns income before income taxes of $500,000.  Income taxes paid to the foreign government are $150,000 or 30%.  Sales and other taxes paid to the foreign government are $100,000.  Blackwater Company must include the $500,000 of foreign branch income in determining its home country taxable income.  In determining its taxable income, Blackwater can choose between taking a deduction for all foreign taxes paid or a credit only for foreign income taxes paid.  The corporate income tax rate in...
7 -Assume that GoGo Co is a U.S. company which has a branch in Peru where...
7 -Assume that GoGo Co is a U.S. company which has a branch in Peru where the corporate income tax rate is 28%. -The U.S. corporate income tax rate is 35%. -GoGo has foreign source income in Peru of $50,000.                -GoGo pays $18,500 of corporate income tax in Peru and $20,000 of other taxes. -GoGo decides to do a calculation to choose between using taxes paid in Mexico as a deduction or tax credit. question: If GoGo had...
Tashakori Trucking, a U.S.-based company, is considering expanding its operations into a foreign country. The required...
Tashakori Trucking, a U.S.-based company, is considering expanding its operations into a foreign country. The required investment at Time = 0 is $10 million. The firm forecasts total cash inflows of $4 million per year for 2 years, $6 million for the next 2 years, and then a possible terminal value of $8 million. In addition, due to political risk factors, Tashakori believes that there is a 50% chance that the gross terminal value will be only $2 million and...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how the firms resources incompetencies support the given pressures regarding costs and local responsiveness. Describe entry modes have they usually used, and whether they are appropriate for the given strategy. Any key issues in their global strategy? casestudy: Atlanta, June 17, 2014. Sea of Delta employees and their families swarmed between food trucks, amusement park booths, and entertainment venues that were scattered throughout what would...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT