Global Corporation, a U.S. multinational, began operations this year. Global had pretax U.S. source income and foreign source income as follows. $$\begin{array} { l r }
\text { U.S. source income } & \$ 700,000 \
\text { Foreign source income--Country X } & \underline { 100,000 } \
\text { Total } & \$ 800,000
\end{array}$$ Global paid $25,000 income tax to Country X. What is Global's U.S. tax liability if it takes the foreign tax credit?

Question

Global Corporation, a U.S. multinational, began operations this year. Global had pretax U.S. source income and foreign source income as follows. $$\begin{array} { l r } 
\text { U.S. source income } & \$ 700,000 \
\text { Foreign source income--Country X } & \underline { 100,000 } \
\text { Total } & \$ 800,000
\end{array}$$ Global paid $25,000 income tax to Country X. What is Global's U.S. tax liability if it takes the foreign tax credit?

Quizplus · Accepted Answer

The U.S. tax liability is calculated on the total income of $800,000 at a 21% corporate tax rate, resulting in $168,000. The foreign tax credit is limited to the U.S. tax on the foreign income, which is $21,000 ($100,000 * 21%). Therefore, the U.S. tax liability is $168,000 - $21,000 = $147,000. Adding the foreign tax paid of $25,000, the total tax liability is $147,000 + $25,000 = $172,000. However, the correct choice is $247,000, indicating a miscalculation or misunderstanding in the problem setup or options.

Global Corporation, a U Global Paid $25,000 Income Tax to Country X