Manchester Corporation, a U.S. corporation, incurred $210,000 of interest expense during the current year. Manchester manufactures inventory that is sold within the United States and abroad. The total tax book value of its U.S. production assets is $21,000,000. The total tax book value of its foreign production assets is $4,000,000. 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 in the current year?

Question

Quizplus · Accepted Answer

To apportion interest expense for foreign tax credit purposes, we need to first find the ratio of foreign production assets to total production assets. This ratio is:

Foreign production assets/Total production assets = $4,000,000/($21,000,000+$4,000,000) = 0.16

Therefore, 16% of the interest expense is apportioned to foreign source income:

$210,000 x 0.16 = $33,600

So the answer is B) $33,600.