McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 31

Freon Corporation, a U..corporation, manufactures air-conditioning and warm air heating equipment.Freon reported gross sales from this product group of $50,000,000, of which $10,000,000 was foreign source.The gross profit percentage for domestic sales was 15 percent, and the gross profit percentage from non-U..sales was 20 percent.Freon incurred R E expenses of $6,000,000, all of which were conducted in the United States.a.What amount of the R E expense will be apportioned to foreign source income under the sales method?
b.What amount of the R E expense will be apportioned to foreign source income under the gross income method?
c.If Freon wants to maximize its foreign tax credit limitation, which method produces the better outcome?