Jenkin Corporation reported the following for its first two taxable years. $$\begin{array} { | l | r | r | }
\hline & \text { Year 1 } &{ \text { Year 2 } } \
\hline \text { U.S. source income } & \$ 500,000 & \$ 600,000 \
\hline \text { Foreign source income } & \underline { 200,000 } & \underline { 400,000 } \
\hline \text { Taxable income } & \underline { \$ 700,000 } & \underline { \$ 1,000,000 } \
\hline \text { Foreign tax paid } & \$ 80,000 & \$ 100,000 \
\hline
\end{array}$$ Calculate Jenkin's U.S. tax liability for Year 2.

Question

Jenkin Corporation reported the following for its first two taxable years. $$\begin{array} { | l | r | r | } 
\hline & \text { Year 1 } &{ \text { Year 2 } } \
\hline \text { U.S. source income } & \$ 500,000 & \$ 600,000 \
\hline \text { Foreign source income } & \underline { 200,000 } & \underline { 400,000 } \
\hline \text { Taxable income } & \underline { \$ 700,000 } & \underline { \$ 1,000,000 } \
\hline \text { Foreign tax paid } & \$ 80,000 & \$ 100,000 \
\hline
\end{array}$$ Calculate Jenkin's U.S. tax liability for Year 2.

Quizplus · Accepted Answer

To calculate Jenkin Corporation's U.S. tax liability for Year 2, we first need to determine its total taxable income, which is the sum of its U.S. source income and foreign source income. 
Total taxable income = U.S. source income + foreign source income = $600,000 + $400,000 = $1,000,000 
Next, we need to determine the portion of Jenkin's total foreign tax paid that is attributable to its foreign source income in Year 2. We can do this by multiplying the total foreign tax paid by the ratio of foreign source income to total taxable income. 
Foreign tax paid attributable to foreign source income in Year 2 = Total foreign tax paid x (Foreign source income / Total taxable income) = $100,000 x ($400,000 / $1,000,000) = $40,000 
Jenkin Corporation can claim a foreign tax credit for the $40,000 of foreign tax paid on its foreign source income in Year 2. 
Finally, we can calculate Jenkin's U.S. tax liability by applying the U.S. corporate tax rate of 21% to its taxable income, and subtracting the foreign tax credit. 
U.S. tax liability = (Taxable income x U.S. corporate tax rate) - Foreign tax credit = ($1,000,000 x 21%) - $40,000 = $210,000 - $40,000 = $170,000 
Therefore, the correct answer is C) $228,000, which is not one of the given options.

Jenkin Corporation Reported the Following for Its First Two Taxable