Multiple choice questions
1. What are the two most common methods of eliminating the double taxation of income earned by foreign corporations?
a. Exempting foreign source income and deducting all foreign taxes paid.
c. Exempting foreign source income and providing a foreign tax credit.
d. Deducting all foreign taxes paid and tax havens.
2. Jordan Inc., a U.S. company, is required to translate the foreign income generated by its foreign operation. To determine U.S. taxable income, what must Jordan use to translate the income of its foreign branch into U.S. dollars?
a. The exchange rate at the end of the year.
c. The exchange rate at the beginning of the year.
d. The previous year's ending exchange rate.
3. For Year 1, Year 2, and Year 3, what is the foreign tax credit allowed in the United States?
a. $7,500, $6,000, and $0.
b. $18,750, $29,000, and $36,000.
c. $75,000, $100,000, and $100,000.
Information for Year 1, Year 2, and Year 3 for the Andean branch of Powell Corporation is presented in the following table. The corporate tax rate in the Andean Republic in Year 1 was 25 percent. In Year 2, the Andean Republic increased its corporate income tax rate to 29 percent. In Year 3, the Andean Republic increased its corporate tax rate to 36 percent. The U.S. corporate tax rate in each year is 35 percent.
Year 1 
Year 2 
Year 3 
Foreign source income 
$75,000 
$100,000 
$100,000 
Foreign taxes paid 
18,750 
29,000 
36,000 
U.S. tax before FTC 
26,250 
35,000 
35,000 
4. For Year 3, what is the net U.S. tax liability?
a. $35,000.
c. $1,000.
d. $6,000.
Information for Year 1, Year 2, and Year 3 for the Andean branch of Powell Corporation is presented in the following table. The corporate tax rate in the Andean Republic in Year 1 was 25 percent. In Year 2, the Andean Republic increased its corporate income tax rate to 29 percent. In Year 3, the Andean Republic increased its corporate tax rate to 36 percent. The U.S. corporate tax rate in each year is 35 percent.
Year 1 
Year 2 
Year 3 
Foreign source income 
$75,000 
$100,000 
$100,000 
Foreign taxes paid 
18,750 
29,000 
36,000 
U.S. tax before FTC 
26,250 
35,000 
35,000 
5. In Year 3, how much excess foreign tax credit can Powell carry back?
a. $7,500.
b. $6,000.
d. $0.
Information for Year 1, Year 2, and Year 3 for the Andean branch of Powell Corporation is presented in the following table. The corporate tax rate in the Andean Republic in Year 1 was 25 percent. In Year 2, the Andean Republic increased its corporate income tax rate to 29 percent. In Year 3, the Andean Republic increased its corporate tax rate to 36 percent. The U.S. corporate tax rate in each year is 35 percent.
Year 1 
Year 2 
Year 3 
Foreign source income 
$75,000 
$100,000 
$100,000 
Foreign taxes paid 
18,750 
29,000 
36,000 
U.S. tax before FTC 
26,250 
35,000 
35,000