Columbia,Inc.,a U.S.corporation,receives a $150,000 cash dividend from Starke,Ltd.Columbia owns 15% of Starke.Starke's E & P is $2 million and it has paid foreign taxes of $750,000 attributable to that E & P.What is Columbia's foreign tax credit related to the Starke dividend?

Question

Quizplus · Accepted Answer

To calculate the foreign tax credit, we need to first determine the proportion of foreign taxes paid by Starke that can be attributed to Columbia's share of the dividend. Since Columbia owns 15% of Starke, we can assume that 15% of the foreign taxes paid by Starke can be attributed to Columbia.
 
15% of $750,000 = $112,500
 
Next, we will determine the proportion of the dividend that is eligible for the foreign tax credit. Since Columbia owns 15% of Starke, we can assume that 15% of the dividend received by Columbia is eligible for the foreign tax credit.
 
15% of $150,000 = $22,500
 
Therefore, Columbia's foreign tax credit related to the Starke dividend is $22,500. The best choice is B.