Boca Corporation, a U.S. corporation, reported U.S. taxable income of $1,000,000 in 2014. Included in the computation of taxable income was foreign source taxable income of $200,000, of which $87,500 was a dividend received from the corporation's 100 percent owned subsidiary in Ireland. The dividend brought with it a deemed paid credit of $12,500. In addition, a withholding tax of $4,375 was imposed on the dividend. Compute Boca Corporation's net U.S. tax liability for 2014. Assume a U.S. tax rate of 34 percent.

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Quizplus · Accepted Answer

Boca Corporation's U.S. tax liability before credits is $1,000,000 * 34% = $340,000. The foreign tax credit includes the deemed paid credit of $12,500 and the withholding tax of $4,375, totaling $16,875. Therefore, the net U.S. tax liability is $340,000 - $16,875 = $323,125.