USAco is a U.S. corporation that purchases scientific equipment for worldwide distribution. During the current year, USAco earns $100 million of sales and a gross profit of $40 million and incurs $30 million of selling, general, and administrative expenses (SG&A), for taxable income of $10 million. USAco’s sales include $20 million of sales to foreign customers. The gross profit on these foreign sales is $10 million. USAco transfers title abroad on all foreign sales and, therefore, the entire $10 million is classified as foreign-source income. A time management study was recently completed that indicates that employees devote 90% of their time to the company’s domestic operations and 10% to foreign operations. Compensation expenses account for $20 million of the $30 million of total SG&A expenses. Assume USAco’s $10 million of taxable income is subject to U.S. tax at a 21% rate.

Compute USAco’s (1) pre-credit US tax, (2) foreign tax credit limitation, and (3) net (after-credit) US tax under each of the following independent assumptions. Show all calculations to support your answers.

a. USAco determines the amount of SG&A expenses allocable to foreign-source income using sales as an apportionment base.

b. USAco determines the amount of SG&A expenses allocable to foreign-source income using gross profit as an apportionment base.

c. USAco determines the amount of SG&A expenses allocable to foreign-source income using time as an apportionment base for the compensation component of SG&A, and gross sales as an apportionment base for the all other SG&A expenses.

d. USAco determines the amount of SG&A expenses allocable to foreign-source income using time as an apportionment base for the compensation component of SG&A, and gross profits as an apportionment base for the all other SG&A expenses.