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Rogue River Exporters USA has $100,000 of before-tax foreign income. The host country has a corporate income tax rate of 25% and the U.S. has a corporate income tax rate of 35%.
-Refer to Instruction 14.1. If the U.S. treated the taxes paid on income earned in the host country as a tax-deductible expense, then Rogue River's total U.S. corporate tax on the foreign earnings would be
A) $10,000.
B) $26,250.
C) $35,000.
D) $51,250.

Question

Quizplus · Accepted Answer

The host country's corporate income tax rate of 25% would amount to $25,000 in taxes paid by Rogue River. With this tax treated as a tax-deductible expense, the taxable foreign income for the U.S. would be reduced to $75,000 ($100,000 - $25,000). Applying the U.S. corporate tax rate of 35% to this taxable foreign income would result in $26,250 in total U.S. corporate tax on the foreign earnings.

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