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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. treated the taxes paid on income earned in the host country as a tax-deductible expense, then Rogue River's total U.S. corporate tax on the foreign earnings would be ________.
A)$10,000
B)$26,250
C)$35,000
D)$51,250

Question

Quizplus · Accepted Answer

First, Rogue River Exporters would owe the host country 25% in corporate income tax, which amounts to $25,000. 
After that, if the U.S. treated the taxes paid on income earned in the host country as a tax-deductible expense, then the U.S. corporate income tax on the remaining $75,000 would be 35%, which amounts to $26,250.
Therefore, the total U.S. corporate tax on the foreign earnings would be $25,000 + $26,250 = $51,250. 
Thus, the correct choice is B.

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