Question

USAco exports videos containing Brewer baseball highlights from the Lopes-Royster era (each video lasts only 30 seconds) on which USAco earns annual gross income of $1.5 million. USAco's video production facility is located in Sheboygan, Wisconsin. On all export sales, title passes in the country of the foreign customer. Which one of the following statements is true?
a. USAco has $1.5 million of foreign-source income.
b. Because USAco purchases the videos that it exports, USAco has $.75 million of foreign-source income.
c. USAco cannot take a foreign tax credit because USAco purchases the videos in the United States.

Answer 1

Answer:

USAco

Export of Videos

The true statement is:

c. USAco cannot take a foreign tax credit because USAco purchases the videos in the United States.

Explanation:

A foreign-source income is income generated from exports of goods and services or arising from the income generated by a U.S. foreign subsidiary.  Foreign tax credit is granted to US entities that have foreign subsidiaries to avoid double taxation of the foreign income.