FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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1. ForCo, a corporation that is incorporated in a foreign country that does not have a treaty with the United States, plans to conduct manufacturing, marketing, and sales operations in the United States.  These U.S. operations produce $5 million of earnings & profits in Year 1.  Assume further that the U.S. operations will have a net worth of $17 million at the beginning of Year 1 and $20 million at the end of Year 1.  During Year 2, the U.S. branch does not produce any earnings & profits and its net worth is $20 million at the beginning of the year and $10 million at the end of the year.  For branch profits tax purposes in Year 1, the dividend equivalent amount (“DEA”) for the U.S. branch is as follows:

a. $1.5 million.

b. $2.0 million

c. $10 million.

$20 million.

d. $25 million.

2. For branch profits tax purposes in Year 2, the DEA for the U.S. branch is as follows:

a. $2 million.

b. $3 million.

c. $10 million.

d. $20 million.

e. $25 million.

3. USAco has its only business operations in foreign country F.  Ignoring Subpart F income and the GILTI inclusion, in Year 1 the foreign operations earn $3,000,000.  USAco did not repatriate any of the earnings.  Which one of the following statements is true?

a. If the foreign operations are operated as a subsidiary, USAco does not report any income in Year 1.

b. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of loss in Year 1.

c. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of DEA for Branch Profit Tax purposes in Year 1.

d. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of income in Year 1 because the operations do not constitute Subpart F income. 

e. If the foreign operations are operated as a branch, USAco has $3,000,000 of loss in Year 1.

4. USAco has its only business operations in foreign country F.  In Year 2 (the year subsequent to Year 1 in the previous question), the foreign operations lose $3,000,000.  USAco did not repatriate any current or accumulated earnings from the foreign operations.  Ignoring Subpart F income and the GILTI inclusion, which one of the following statements is true?

a. If the foreign operations are operated as a subsidiary, USAco reports a loss of $3,000,000 in Year 2. 

b. If the foreign operations are operated as a subsidiary, USAco has a $3,000,000 loss in Year 2 due to the §956 inclusion.

c. If the foreign operations are operated as a subsidiary, USAco has a profit in Year 2 due to Subpart F.

d. If the foreign operations are operated as a branch, USAco has a $3,000,000 loss in Year 2.

e. If the foreign operations are operated as a branch, USAco does not report any income or loss in Year 2. 

5. USAco, a domestic corporation, exports widgets on which it earns annual gross income of $1.5 million.  USAco purchases the widgets from UNF Productions, a Florida corporation.  On all export sales, title passes in the country of the foreign customer.  Which one of the following statements is true?

a. USAco has $1.5 million of foreign‑source income.

b. Because USAco purchases the widgets that it exports, USAco has $0.75 million of foreign‑source income.

c. USAco cannot take a foreign tax credit because USAco purchases the widgets in the United States. 

d. All of the above.

e. None of the above.

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