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

Question

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

Quizplus · Accepted Answer

Jokar's total taxable income is $640,000 ($540,000 U.S. source income + $100,000 foreign source income). The U.S. tax liability on this income is $204,000 ($97,000 on the first $500,000 and 21% on the remaining $140,000). Jokar can claim a foreign tax credit of $50,000, which reduces its U.S. tax liability to $154,000.

Jokar Inc, a U