Question

Horton Corporation is a 100 percent owned Canadian subsidiary of Cruller Corporation, a U.S. corporation. During the current year, Horton paid a dividend of C$600,000 to Cruller. The dividend qualifies for the 100 percent dividends received deduction. The dividend was subject to a withholding tax of C$30,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. source taxable income of $2,000,000 before considering the dividend received from Horton Corporation. Compute the tax consequences to Cruller as a result of this dividend.

A) Taxable income of $2,600,000, net U.S. tax of $516,000, and FTC carryover of $0.
B) Taxable income of $2,600,000, net U.S. tax of $546,000, and FTC carryover of $30,000.
C) Taxable income of $2,000,000, net U.S. tax of $390,000, and FTC carryover of $0.
D) Taxable income of $2,000,000, net U.S. tax of $420,000, and FTC carryover of $0

Answer 1

D) Taxable income of $2,000,000, net U.S. tax of $420,000, and FTC carryover of $0

Step-by-step explanation:

Computation for the tax consequences to Cruller as a result of this dividend

The tax consequences will be Taxable income of the amount of $2,000,000, net U.S. tax of the amount of $420,000 Calculated as ($2,000,000 × 21%) and FTC carryover of $0 reason been that withholding tax won't be creditable based on the fact that the withholding tax was been imposed on a dividend that is eligible for the 100% dividends deduction that was received.