Hanover Corporation, a U.S. corporation, incurred $315,000 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 $20,500,000. The total tax book value of its foreign production assets is $5,250,000. 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? (Do not round intermediate calculations. Round your answer to nearest whole dollar amount.)

Question

Quizplus · Accepted Answer

To calculate the foreign source income in this problem, we need to use the following formula:
Foreign source income = (Total foreign production assets / Total production assets) x Taxable income
Foreign source income = ($5,250,000 / $20,500,000) x Taxable income
Foreign source income = 0.2561 x Taxable income
Next, we need to calculate the proportion of interest expense that can be allocated to foreign source income using the following formula:
Interest expense allocated to foreign source income = Foreign source income / Taxable income x Interest expense
Interest expense allocated to foreign source income = 0.2561 x $315,000
Interest expense allocated to foreign source income = $80,671
Therefore, the answer is C, $80,671.