Logan,an Indiana corporation,conducts its international business through 100% controlled foreign subsidiaries.This year,Logan's U.S.source taxable income was $5,431,000,and it received $12,250,000 dividends from its foreign subsidiaries.Logan paid no foreign income tax itself,but its subsidiaries paid foreign income tax at a 30% rate.Logan's U.S.income tax (35% rate)is:

Question

Quizplus · Accepted Answer

Logan's U.S. income tax can be calculated as follows:
U.S. income tax on U.S. source taxable income = $5,431,000 x 35% = $1,900,850
Foreign tax credit = 0.3 x $12,250,000 = $3,675,000 (foreign income tax paid by subsidiaries)
Net U.S. income tax = $1,900,850 - $3,675,000 = -$1,774,150 (negative means Logan gets a tax credit)
Therefore, Logan's total income tax liability for the year is $2,775,850 ($1,900,850 + $3,675,000 - $1,774,150). Option B is the correct answer.

Logan,an Indiana Corporation,conducts Its International Business Through 100% Controlled Foreign