Chapter 19, Problem 19.1WUE

Summary Introduction

To determine: The net funds available to the parent corporation (a) if foreign taxes can be applied against the U.S. tax liability and (b) if they cannot.

Answer to Problem 19.1WUE

The net funds available to the parent corporation (a) if foreign taxes can be applied against the U.S. tax liability is $31,350 and (b) if they cannot net funds available is $20,691.

Explanation of Solution

Given information:

Subsidiary pretax income: $55,000

Local tax: 40.00%

Dividend withholding tax: 5.00%

US tax rate: 34.00%

Calculation of the SA receipts of dividend:

Excel working:

Therefore, the SA receipt of debt is $31,250.

(a) if foreign taxes can be applied against the U.S. tax liability

Calculation of the net fund available to SA:

Excel working:

Therefore, net fund available to SA is $31,500.

(b) if they cannot.

Foreign taxes cannot be applied against the U.S. tax liability

Excel working:

Therefore, Net fund available to SA is $20,691.00