Question

The following information pertains to Wald Corp.'s operations for the current year: Worldwide taxable income $300,000 U.S. source taxable income 180,000 U.S. income tax before foreign tax credit 96,000 Foreign nonbusiness-related interest earned 30,000 Foreign income taxes paid on non business-related interest earned 12,000 Other foreign source taxable income 90,000 Foreign income taxes paid on other foreign source taxable income 27,000What amount of foreign tax credit may Wald claim for the current year?

Answer 1

Answer:

The amount of foreign tax credit may Wald claim for the current year is $36,600

Explanation:

For computing the claim for the foreign tax credit, we have to do the proportionate of  U.S. income tax before foreign tax credit based on Foreign non-business-related interest, Other foreign sources taxable income to the Worldwide taxable income.  

In mathematically,  

Foreign tax credit based on non business-related which equals to

= (Foreign non business-related interest ÷ Worldwide taxable income) × U.S. income tax before foreign tax credit  

= ($30,000 ÷ $300,000) × $96,000

= $9,600

Foreign tax credit based on Other foreign source taxable income  which equals to

= (Other foreign source taxable income  ÷ Worldwide taxable income) × U.S. income tax before foreign tax credit  

= ($90,000 ÷ $300,000) × $96,000

= $28,800

The lower of $28,800 and $27,000 so, $27,000 as it includes the foreign income taxes paid  

So, The total amount of foreign tax credit equals to

= $9,600 + $27,000

= $36,600