Austin Corporation, a U.S. corporation, received the following investment income during the current year: $50,000 of dividend income from ownership of stock in a French corporation, $20,000 interest on a loan to its Dutch subsidiary, $40,000 royalty from its 50 percent owned Irish venture, and $30,000 capital gain from sale of its stock in a Brazilian corporation. How much of Austin's income is treated as foreign source?
A)$140,000
B)$110,000
C)$70,000
D)$60,000

Question

Quizplus · Accepted Answer

The dividend income and capital gain from the sale of stock are foreign source income since they are derived from the French and Brazilian corporations, respectively. The interest income and royalty income are not foreign source income since they are derived from the Dutch subsidiary and Irish venture, respectively, which are owned by Austin Corporation. Therefore, the total foreign source income is $50,000 (dividend income) + $30,000 (capital gain) = $80,000. The remaining $70,000 ($20,000 interest income + $40,000 royalty income + $10,000) is domestic source income. Therefore, the correct answer is B) $110,000.