Wisconsin Cheese Corp. is a large producer of gourmet cheese and has recently expanded overseas. In its

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Wisconsin Cheese Corp. is a large producer of gourmet cheese and has recently expanded overseas. In its first year of international operations ( year 1), Wisconsin Cheese had $ 1 billion of U. S. taxable income, faced a 35% U. S. tax rate, and paid $ 100 million of foreign taxes. The $ 1 billion of taxable income includes $ 200 million of foreign- source income and $ 800 million of U.S- source income.
a. What is Wisconsin Cheese Corp.’ s year 1 foreign tax credit, foreign tax credit carryover, and U. S. tax liability?
b. Now assume that in year 2, Wisconsin Cheese again has $ 1 billion of U. S. source income, again faces a 35% U. S. tax rate, and paid $ 120 million of foreign taxes. In year 2, the firm reported $ 500 million of foreign- source income on its U. S. return. What is Wisconsin Cheese Corp.’ s year 2 foreign tax credit, foreign tax credit carryover, and U. S. tax liability?
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Taxes And Business Strategy A Planning Approach

ISBN: 9780132752671

5th Edition

Authors: Myron Scholes, Mark Wolfson, Merle Erickson, Michelle Hanlon

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