Compute Waco’s allowable foreign tax credit. Assume a U.S. corporate tax rate of

Question

Compute Waco’s allowable foreign tax credit. Assume a U.S. corporate tax rate of 34 percent. (Do not round intermediate computations.

Enter your answers in dollars and not in millions of dollars.)

Foreign Tax Credit:

Waco Leather Inc., a U.S. corporation, reported total taxable income of $4.7 million. Taxable income included $1.65 million of foreign source taxable income from the company’s branch operations in Mexico. All of the branch income is general category income. Waco paid Mexican income taxes of $412,500 on its branch income.

Compute Waco’s allowable foreign tax credit. Assume a U.S. corporate tax rate of 34 percent. (Do not round intermediate computations.

Enter your answers in dollars and not in millions of dollars.)

Foreign Tax Credit:

Explanation / Answer

Foreign Tax Credit = $ 4,12,500 Workings: Waco's pre credit U.s tax is $15,98,000 ($47,00,000 X 34%). The Company's foreign tax credit computation is computed as = $16,50,000 / $47,00,000 X $15,98,000 = $ 5,61,000 Waco's allowable foreign tax credit is the full $4,12,500. waco has an excess limitation of $1,03,500 which could be absorb foreign tax credit carryforwards from prior years.

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