Dayton, a U.S. corporation, owns all the stock in Fiero, a foreign corporation organized in the current

Question:

Dayton, a U.S. corporation, owns all the stock in Fiero, a foreign corporation organized in the current year. During the year, Fiero earns 400,000 pirogs of pretax profits and accrues 100,000 pirogs of Country Z income taxes. On August 25 of the current year, Fiero pays to Dayton a 150,000 pirog dividend on which 7,500 pirogs in Country Z taxes are withheld. On March 1 of the following year, Fiero pays 100% of its Country Z income taxes for the current year. Assume Dayton has no other foreign source income, and its U.S. taxable income (excluding the dividend) is $1 million. The pirog-U.S. dollar exchange rate on various dates are as follows:

January 1 of the current year ...................... 9.0 pirogs = $1 (U.S.)

August 25 of the current year ................... 10.0 pirogs = $1 (U.S.)

Current year average .............................. 9.5 pirogs = $1 (U.S.)

March 1 of the following year ................. 11.0 pirogs = $1 (U.S.)

a. For U.S. tax reporting purposes, what are Dayton's dividend and deemed paid foreign tax credit amounts in U.S. dollars?

b. What is Dayton's net U.S. tax liability as a result of the dividend?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...