Which of the following statements best describes how the deemed paid credit is computed by a U.S.corporation?
A) The foreign subsidiary's post-1986 earnings and profits are kept in functional currency and the post-1986 foreign taxes are kept in U.S. dollars.
B) The foreign subsidiary's post-1986 earnings and profits are kept in U.S. dollars and the post-1986 foreign taxes are kept in functional currency.
C) The foreign subsidiary's post-1986 earnings and profits and post-1986 foreign taxes are kept in functional currency.
D) The foreign subsidiary's post-1986 earnings and profits and post-1986 foreign taxes are kept in U.S. dollars.

Question

Quizplus · Accepted Answer

The deemed paid credit is computed by a U.S. corporation by keeping the foreign subsidiary's post-1986 earnings and profits in functional currency and the post-1986 foreign taxes in U.S. dollars. This is because the earnings and profits are generated in the subsidiary's functional currency and taxes are paid in the foreign currency. The functional currency is then translated into U.S. dollars using the average exchange rate for the year. This ensures that the foreign taxes are expressed in U.S. dollars, which is necessary for the deemed paid credit calculation.

Which of the Following Statements Best Describes How the Deemed