Use the information to answer the following question(s).
Rogue River Exporters USA has $100,000 of before tax foreign income. The host country has a corporate income tax rate of 25% and the U.S. has a corporate income tax rate of 35%.
-Refer to Instruction 20.1. If the U.S. has no bilateral trade agreement with the host country, what is the total amount of income taxes Rogue River Exporters will pay?
A)$25,000
B)$35,000
C)$51,250
D)$60,000

Question

Quizplus · Accepted Answer

First, we need to calculate the foreign income tax that Rogue River Exporters will pay to the host country, which is 25% of $100,000, equaling $25,000. Then, we need to calculate the U.S. income tax on the foreign income, which is 35% of $100,000, equaling $35,000. However, since there is no bilateral trade agreement between the U.S. and the host country, Rogue River Exporters cannot claim a foreign tax credit for the $25,000 foreign income tax paid, which means they will have to pay the full U.S. income tax of $35,000. Therefore, the total income taxes Rogue River Exporters will pay is $25,000 + $35,000 = $51,250.

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