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Manchester Corporation, a U.S. corporation, incurred $125,000 of interest expense during 2015....

Question:

Manchester Corporation, a U.S. corporation, incurred $125,000 of interest expense during 2015. Manchester manufactures inventory that is sold within the United States and abroad. The total tax book value and fair market value of its U.S. production assets is $20,000,000 and $50,000,000, respectively. The total tax book value and fair market value of its foreign production assets is $5,000,000 and $10,000,000, respectively. What is the minimum amount of interest expense that can be apportioned to the company's foreign source income for foreign tax credit purposes, assuming this is the first year the company makes this computation?

A) $0

B) $20,000

C) 25,000

D) 100,000

Interest Expense:

Interest expense is a non-operating expense and it can either be a liability or an asset. It is usually computed by multiplying the interest rate by the outstanding principal amount of the debt.

Answer and Explanation:

The ratio of foreign assets to total assets using the fair market value method is $20,000,000/$50,000,000= 40%

Interest expense that can be apportioned to the company's foreign source income for foreign tax credit purposes = $125,000*40%= $ 50,000.

NB:My answer is not in the options given.


Learn more about this topic:

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How to Calculate Interest Expense: Formula & Example

from Financial Accounting: Help and Review

Chapter 5 / Lesson 18
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