Answer A:
U.S. source Income = $356,000
Foreign source income = $57,000
Worldwide taxable income = 356000 + 57000 =$413,000
Corporate tax rate = 21%
Pre-credit U.S. liability = 413000 * 21% = $86,730
Foreign tax credit limitation = (Foreign source income / Worldwide taxable income) * Pre-credit U.S. liability
= (57000 /413000) * 86730
= $11,970
Foreign tax credit = Lesser of creditable taxes (26,600) or the limitation (11970) = $11,970
Answer B:
If Elmo paid only $9120 of country Z income tax:
Foreign tax credit = Lesser of creditable taxes (9120) or the limitation (11970) = $9,120
Net U.S tax liability = Pre-credit U.S. liability - Foreign tax credit allowable = 86730 - 9120 = $77,610
Elmo Inc. is a U.S.corporation with a branch office in foreign country Z. During the current...
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