A U.S. corporation sells its products in the United States and Europe. During the current year, selling, general, and administrative (SG&A) expenses add up to $2,000.

The corporation had $12,000 in gross sales to U.S. customers and $3,000 to European customers. Gross income (sales minus cost of goods sold) from domestic sales was $3,000, and $1,000 from foreign sales.

1. What amount of the SG&A expenses are allocated to domestic (US) and foreign source income using the following methods:

Gross Sales Method

Gross Income Method

2. Which method maximizes its foreign tax credit limitation? Assume the FDII deduction does not apply.