Camellia Corporation, a U.S. corporation, incurred $600,000 of research and experimental (R&E) expenses during 2016. Camellia sells inventory within the United States and abroad. Camellia conducted all of the research related to the inventory within the United States. Gross sales of the inventory were $20,000,000, of which $12,000,000 was from foreign source sales. Gross profit from sale of the inventory was $8,000,000, of which $2,000,000 was from foreign source sales. What is the minimum amount of R&E expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

Question

Quizplus · Accepted Answer

The minimum amount of R&E expense that can be apportioned to the company's foreign source income for foreign tax credit purposes is $112,500. This is calculated by multiplying the total R&E expense by the ratio of foreign source gross sales to total gross sales. In this case, the ratio of foreign source gross sales to total gross sales is $12,000,000/$20,000,000 = 60%. Therefore, the minimum amount of R&E expense that can be apportioned to the company's foreign source income is $600,000 x 60% = $112,500.