During the year,Purple Corporation (a U.S.Corporation) has U.S.-source income of $1,800,000 and foreign income of $600,000.The foreign-source income generates foreign income taxes of $150,000.The U.S.income tax before the foreign tax credit is $816,000.Purple Corporation's foreign tax credit is:

Question

Quizplus · Accepted Answer

Purple Corporation is entitled to a foreign tax credit for the foreign income taxes paid on its foreign-source income. The foreign tax credit is limited to the lesser of the foreign income taxes paid or the U.S. income tax attributable to the foreign-source income. In this case, the foreign income taxes paid ($150,000) are less than the U.S. income tax attributable to the foreign-source income (which can be calculated as $600,000/($1,800,000+$600,000) x $816,000 = $204,000), so the foreign tax credit is equal to the foreign income taxes paid, which is $150,000. Therefore, the correct answer is B.

During the Year,Purple Corporation (A U