Problem 24-37 (LO 24-1) (Algo) Spartan Corporation, a US corporation, reported $2.5 million of pretax income from its business operations in Spartania, which were conducted through a foreign branch. Spartania taxes branch income at 15 percent, and the United States taxes corporate income at 21 percent. Required: a. If the United States provided no mechanism for mitigating double taxation, what would be the total tax (U.S. and foreign) on the $2.5 million of branch profits? b. Assume the United States allows U.S. corporations to exclude foreign source income from U.S. taxation. What would be the total tax on the $2.5 million of branch profits? c. Assume the United States allows U.S. corporations to claim a deduction for foreign income taxes. What would be the total tax on the $2.5 million of branch profits?
Problem 24-37 (LO 24-1) (Algo) Spartan Corporation, a US corporation, reported $2.5 million of pretax income from its business operations in Spartania, which were conducted through a foreign branch. Spartania taxes branch income at 15 percent, and the United States taxes corporate income at 21 percent. Required: a. If the United States provided no mechanism for mitigating double taxation, what would be the total tax (U.S. and foreign) on the $2.5 million of branch profits? b. Assume the United States allows U.S. corporations to exclude foreign source income from U.S. taxation. What would be the total tax on the $2.5 million of branch profits? c. Assume the United States allows U.S. corporations to claim a deduction for foreign income taxes. What would be the total tax on the $2.5 million of branch profits?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Problem 24-37 (LO 24-1) (Algo)
Spartan Corporation, a US corporation, reported $2.5 million of pretax income from its business operations in Spartania, which were
conducted through a foreign branch. Spartania taxes branch income at 15 percent, and the United States taxes corporate income at 21
percent.
Required:
a. If the United States provided no mechanism for mitigating double taxation, what would be the total tax (U.S. and foreign) on the $2.5
million of branch profits?
b. Assume the United States allows U.S. corporations to exclude foreign source income from U.S. taxation. What would be the total tax
on the $2.5 million of branch profits?
c. Assume the United States allows U.S. corporations to claim a deduction for foreign income taxes. What would be the total tax on the
$2.5 million of branch profits?
d-1. Assume the United States allows U.S. corporations to claim a credit for foreign income taxes paid on foreign source income. What
would be the total tax on the $2.5 million of branch profits?
d-2. Assume the United States allows U.S. corporations to claim a credit for foreign income taxes paid on foreign source income. What
would be your answer if Spartania taxed branch profits at 30 percent?
Note: For all requirements, enter your answers in dollars and not in millions of dollars.
Answer is complete but not entirely correct.
a. Total tax
b. Total tax
c. Total tax
d-1. Total tax
d-2. Total tax
$900,000
$375,000
$ 821,250
$ 525,000
$ 525,000
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