Question

Manchester Corporation, a U.S. corporation, incurred $100,000 of interest expense during the current year. Manchester manufactures inventory that is sold within the United States and abroad. The total tax book value of its U.S. production assets is $20,000,000. The total tax book value of its foreign production assets is $5,000,000. What amount of interest expense is apportioned to the company's foreign source income for foreign tax credit purposes, assuming the interest expense is fully deductible in the current year

Answer 1

the amount of the interest expense is $20,000

Step-by-step explanation:

The computation of the amount of the interest expense is shown below;

= Interest expense × total tax book value ÷ (total tax book of U.S + total tax book value of its foreign production assets)

= $100,000 × $5,000,000 ÷ ($5,000,000 + $20,000,000)

= $100,000 × $5,000,000 ÷ $25,000,000

= $20,000

hence, the amount of the interest expense is $20,000