Hanover Corporation, a U.S. corporation, incurred $300,000 of interest expense during the current year. Hanover manufactures inventory that is sold within the United States and abroad. The total tax book value of its production assets is $20,000,000. The total tax book value of its foreign production assets is $5,000,000. What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes, assuming the interest expense is fully deductible?

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Quizplus · Accepted Answer

The interest expense is apportioned to the company's foreign source income based on the ratio of foreign production assets to total production assets. The foreign production assets are $5,000,000 and the total production assets are $20,000,000, so the ratio is 5/20 or 25%. Therefore, the amount of interest expense apportioned to the company's foreign source income is $300,000 x 25% = $75,000.