Spartan Corporation manufactures quidgets at its plant in Sparta, Michigan. Spartan sells its quidgets to customers in the United States, Canada, England, and Australia. Spartan markets its products in Canada and England through branches in Toronto and London, respectively. Spartan reported total gross income on U.S. sales of $35,100,000 and total gross income on Canadian and U.K. sales of $7,800,000, split equally between the two countries. Spartan paid Canadian income taxes of $936,000 on its branch profits in Canada and U.K. income taxes of $1,092,000 on its branch profits in the United Kingdom. Spartan financed its Canadian operations through a $9 million capital contribution, which Spartan financed through a loan from Bank of America. During the current year, Spartan paid $540,000 in interest on the loan. Spartan sells its quidgets to Australian customers through its wholly owned Australian subsidiary. Spartan reported gross income of $2,240,000 on sales to its subsidiary during the year. The subsidiary paid Spartan a dividend of $837,500 on December 31 (the withholding tax is 0 percent under the U.S.-Australia treaty). Spartan paid Australian income taxes of $412,500 on the income repatriated as a dividend. Requirement: a. Compute Spartan's foreign source gross income and foreign tax (direct and withholding) for the current year. b. Assume 20 percent of the interest paid to Bank of America is allocated to the numerator of Spartan's FTC limitation calculation. Compute Spartan Corporation's FTC limitation using your calculation from part (a) and any excess FTC or excess FTC limitation (all of the foreign source income is put in the foreign branch FTC basket).
Spartan Corporation manufactures quidgets at its plant in Sparta, Michigan. Spartan sells its quidgets to customers in the United States, Canada, England, and Australia. Spartan markets its products in Canada and England through branches in Toronto and London, respectively. Spartan reported total gross income on U.S. sales of $35,100,000 and total gross income on Canadian and U.K. sales of $7,800,000, split equally between the two countries. Spartan paid Canadian income taxes of $936,000 on its branch profits in Canada and U.K. income taxes of $1,092,000 on its branch profits in the United Kingdom. Spartan financed its Canadian operations through a $9 million capital contribution, which Spartan financed through a loan from Bank of America. During the current year, Spartan paid $540,000 in interest on the loan. Spartan sells its quidgets to Australian customers through its wholly owned Australian subsidiary. Spartan reported gross income of $2,240,000 on sales to its subsidiary during the year. The subsidiary paid Spartan a dividend of $837,500 on December 31 (the withholding tax is 0 percent under the U.S.-Australia treaty). Spartan paid Australian income taxes of $412,500 on the income repatriated as a dividend. Requirement: a. Compute Spartan's foreign source gross income and foreign tax (direct and withholding) for the current year. b. Assume 20 percent of the interest paid to Bank of America is allocated to the numerator of Spartan's FTC limitation calculation. Compute Spartan Corporation's FTC limitation using your calculation from part (a) and any excess FTC or excess FTC limitation (all of the foreign source income is put in the foreign branch FTC basket).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Spartan Corporation manufactures quidgets at its plant in Sparta, Michigan. Spartan sells its quidgets to customers in the United
States, Canada, England, and Australia.
Spartan markets its products in Canada and England through branches in Toronto and London, respectively. Spartan reported total
gross income on U.S. sales of $35,100,000 and total gross income on Canadian and U.K. sales of $7,800,000, split equally between
the two countries. Spartan paid Canadian income taxes of $936,000 on its branch profits in Canada and U.K. income taxes of
$1,092,000 on its branch profits in the United Kingdom. Spartan financed its Canadian operations through a $9 million capital
contribution, which Spartan financed through a loan from Bank of America. During the current year, Spartan paid $540,000 in interest
on the loan.
Spartan sells its quidgets to Australian customers through its wholly owned Australian subsidiary. Spartan reported gross income of
$2,240,000 on sales to its subsidiary during the year. The subsidiary paid Spartan a dividend of $837,500 on December 31 (the
withholding tax is 0 percent under the U.S.-Australia treaty). Spartan paid Australian income taxes of $412,500 on the income
repatriated as a dividend.
Requirement:
a. Compute Spartan's foreign source gross income and foreign tax (direct and withholding) for the current year.
b. Assume 20 percent of the interest paid to Bank of America is allocated to the numerator of Spartan's FTC limitation calculation.
Compute Spartan Corporation's FTC limitation using your calculation from part (a) and any excess FTC or excess FTC limitation (all
of the foreign source income is put in the foreign branch FTC basket).
Complete this question by entering your answers in the tabs below.
Req A
Req B
Assume 20 percent of the interest paid to Bank of America is allocated to the numerator of Spartan's FTC limitation
calculation. Compute Spartan Corporation's FTC limitation using your calculation from part (a) and any excess FTC or excess
FTC limitation (all of the foreign source income is put in the foreign branch FTC basket). (Do not round intermediate
calculations. Enter your answers in dollars not in millions of dollars.)
Show less A
FTC limitation
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