Jovar Inc.,a U.S.multinational,began operations this year.Jovar had pretax U.S.source income and foreign source income as follows.Corporate tax rate schedule. Jovar paid $50,000 income tax to Country O.Compute Jovar's U.S.tax liability if it takes the foreign tax credit.

Question

Jovar Inc.,a U.S.multinational,began operations this year.Jovar had pretax U.S.source income and foreign source income as follows.Corporate tax rate schedule.   Jovar paid $50,000 income tax to Country O.Compute Jovar's U.S.tax liability if it takes the foreign tax credit.

Quizplus · Accepted Answer

To calculate Jovar's U.S. tax liability, we need to first calculate its taxable income by adding U.S. source income and foreign source income and then subtracting any allowed deductions.

Total income = $3,000,000 + $1,500,000 = $4,500,000

Allowed deductions = $1,000,000

Taxable income = $4,500,000 - $1,000,000 = $3,500,000

Next, we need to calculate Jovar's U.S. tax liability on this taxable income using the corporate tax rate schedule.

Tax liability = ($2,750,000 x 0.21) + ($750,000 x 0.24) = $577,500

However, Jovar is also eligible for a foreign tax credit for the $50,000 income tax it paid to Country O. The foreign tax credit reduces Jovar's U.S. tax liability by the lesser of the foreign income tax paid or the U.S. tax on the foreign source income.

In this case, the U.S. tax on the foreign source income is $1,500,000 x 0.21 = $315,000, which is higher than the foreign income tax paid. Therefore, the foreign tax credit is limited to $50,000.

Final U.S. tax liability = $577,500 - $50,000 = $527,500

Therefore, the correct answer is C) $204,000.

Jovar Inc,A U