Dixie Inc., a Tennessee corporation, conducts business through branch offices in the United States, Mexico, and Canada. Dixie owns 100 percent of the stock of two foreign subsidiaries, Dix-Col Inc. and Dix-Per Inc., through which it conducts its South American business. This year, Dixie recognized the following items of taxable income:
U.S. source income from domestic branch ……………$4,922,000
Foreign source income from foreign branches ………….. 1,031,000
Cash dividends received from Dix-Col ………………… 249,000
Cash dividends received from Dix-Per ………………. 186,000
During the year, Dixie paid $116,200 income tax to Mexico and $286,700 income tax to Canada. It paid no direct income taxes to any other foreign country. However, Dix-Col paid a 20 percent income tax to the country of Colombia, and Dix-Per paid a 37 percent income tax to the country of Peru.
a. Compute Dixie’s taxable income.
b. Compute Dixie’s U.S. tax.