Question

Hanover Corporation, a U.S. corporation, incurred $306,000 of interest expense during the current year. Hanover manufactures inventory that is sold within the United States and abroad. The total tax book value of its production assets is $20,200,000. The total tax book value of its foreign production assets is $5,100,000. 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

Answer 1

Interest expense apportioned to foreign = $77,257.35

Step-by-step explanation:

Total Interest expense = $306,000

Production assets = $20,200,000

Foreign production assets = $5,100,000

Ratio of foreign assets to total assets = $5,100,000 / $20,200,000 * 100

Ratio of foreign assets to total assets = 25.2475%

Interest expense apportioned to foreign = $306,000 * 25.2475%

Interest expense apportioned to foreign = $77,257.35.