FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Euroco is a foreign corporation that manufactures watches for sale worldwide. Euroco markets its watches in the United States through a branch sales office located in Boston. During Year 1, Euroco’s effectively connected earnings and profits are $12 million, and its U.S. net equity is $24 million at the beginning of the year, and $16 million at the end of the year. In addition, Euroco’s interest expense recorded and paid by the U.S. branch was $1,760,000 of portfolio interest paid to an unrelated foreign corporation and $800,000 of interest paid to a foreign corporation which owns 15% of the combined voting power of Euroco’s stock. During Year 2, Euroco’s effectively connected earnings and profits are $20 million, and its U.S. net equity at the end of the year is $18 million. In addition, Euroco’s U.S. branch had recorded interest paid of $640,000 paid to a U.S. corporation. Euroco is not in a treaty country.
What is Euroco’s branch profits tax, if any, for Year 2?
a.
$6,000,000
b.
$6,600,000
c.
$5,400,000
d.
$4,800,000
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