Question
Summer Corporations business is international in scope and is subject to income taxes in a foreign country. Summers earnings and income taxes paid in Brazil
Summer Corporation’s business is international in scope and is subject to income taxes in a foreign country. Summer’s earnings and income taxes paid in Brazil $1,900,000 and $595,000 respectively. Summer’s earnings in Ireland were $1,000,000, where income tax of $100,000 was paid. If Summer Corporation’s worldwide income subject to taxation in the United States is $5,000,000 and the U.S. income tax due prior to the foreign tax credit is $1,050,000.
- a. Explain the purpose of the foreign tax credit and describe how it is computed.
- b. Compute the allowable foreign tax credit, and the US tax liability after the credit.
- c. If, instead, the total foreign income taxes paid were $550,000 (450,000 in Brazil plus 100,000 in Ireland), compute the allowable foreign tax credit.
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Intermediate Accounting
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