Use the information to answer the following question(s).
Green Valley 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 15.1.If the U.S.treated the taxes paid on income earned in the host country as a tax-deductible expense,then Green Valley'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

The host country has a corporate income tax rate of 25%, so Green Valley Exporters USA paid $25,000 in foreign income taxes ($100,000 X 0.25).

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 tax on the foreign earnings would be calculated as follows:

Foreign income before tax: $100,000
Foreign income tax paid: -$25,000
Taxable income in the U.S.: $75,000
U.S. corporate tax at 35%: $26,250

Therefore, the total U.S. corporate tax on the foreign earnings would be $26,250 (Option B).

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