Accounting two Problems Set
Question # 00025621
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Updated on: 09/10/2014 12:34 AM Due on: 09/10/2014
PROBLEM 1
Tenco, a domestic corporation, manufactures tennis rackets for sale in the United States and abroad. Tenco owns 100% of the stock of Teny, a foreign marketing subsidiary that was organized in Year 1. During Year 1, Teny had $15 million of foreign base company sales income, paid $3 million in foreign income taxes, and distributed no dividends. During Year 2, Teny had no earnings and profi ts, paid no foreign income taxes, and distributed a $12 million dividend.
Assuming the U.S. corporate tax rate is 35%, what are the U.S. tax consequences of Teny’s Year 1 and Year 2 activities?
Problem 2:
Trikeco, a domestic corporation, manufactures mountain bicycles for sale both in the United States and Europe. Trikeco operates in Europe through Trike1, a wholly owned Italian corporation that manufactures a special line of mountain bicycles for the European market.
In addition, Trike1 owns 100% of Trike2, a U.K. corporation that market's Trike1's products in the United Kingdom. At the end of the current year, the undistributed earnings and foreign income taxes of Trike1 and Trike2 are as follows:
Trike 1 Trike2
Post - 1986 undistributed earnings: $90 million $54 million
Post-1986 foreign income taxes: $36 million $27 million
During the current year, Trike2 distributed a $10 million dividend to Trike1, and Trike1 distributed a $10 million divident to Trikeco. To simplify the computations, assume that neither dividend distributions attracted any Italian or U.K. withholding taxes, and that the dividend received by Trike1 was exempt from Italian taxation.
Compute Trikeco's deemed paid foreign tax credit, as well as the residual U.S. tax, if any, on the dividend Trikeco received from Trike1. Assume the U.S. tax rate is 35%.
Tenco, a domestic corporation, manufactures tennis rackets for sale in the United States and abroad. Tenco owns 100% of the stock of Teny, a foreign marketing subsidiary that was organized in Year 1. During Year 1, Teny had $15 million of foreign base company sales income, paid $3 million in foreign income taxes, and distributed no dividends. During Year 2, Teny had no earnings and profi ts, paid no foreign income taxes, and distributed a $12 million dividend.
Assuming the U.S. corporate tax rate is 35%, what are the U.S. tax consequences of Teny’s Year 1 and Year 2 activities?
Problem 2:
Trikeco, a domestic corporation, manufactures mountain bicycles for sale both in the United States and Europe. Trikeco operates in Europe through Trike1, a wholly owned Italian corporation that manufactures a special line of mountain bicycles for the European market.
In addition, Trike1 owns 100% of Trike2, a U.K. corporation that market's Trike1's products in the United Kingdom. At the end of the current year, the undistributed earnings and foreign income taxes of Trike1 and Trike2 are as follows:
Trike 1 Trike2
Post - 1986 undistributed earnings: $90 million $54 million
Post-1986 foreign income taxes: $36 million $27 million
During the current year, Trike2 distributed a $10 million dividend to Trike1, and Trike1 distributed a $10 million divident to Trikeco. To simplify the computations, assume that neither dividend distributions attracted any Italian or U.K. withholding taxes, and that the dividend received by Trike1 was exempt from Italian taxation.
Compute Trikeco's deemed paid foreign tax credit, as well as the residual U.S. tax, if any, on the dividend Trikeco received from Trike1. Assume the U.S. tax rate is 35%.
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Solution: Accounting two Problems Set Solution