Provo Corporation received a dividend of $350,000 from its 100 percent owned German subsidiary.A deemed paid credit of $150,000 was available on the dividend.No withholding tax was imposed on the dividend.What are the U.S.tax consequences to Provo on receipt of the dividend,assuming the foreign tax credit limitation is not binding and the company breaks even on its U.S.operations? Assume a U.S.tax rate of 34 percent.
A) Taxable income of $350,000 and a net U.S. tax liability of $0.
B) Taxable income of $350,000 and a net U.S. tax liability of $20,000.
C) Taxable income of $500,000 and a net U.S. tax liability of $170,000.
D) Taxable income of $500,000 and a net U.S. tax liability of $20,000.

Question

Quizplus · Accepted Answer

The taxable income is $500,000 because the dividend of $350,000 plus the deemed paid credit of $150,000 is included. The U.S. tax on $500,000 at 34% is $170,000, but the foreign tax credit of $150,000 reduces the net U.S. tax liability to $20,000.

Provo Corporation Received a Dividend of $350,000 from Its 100