ForCo, a corporation that is incorporated in a foreign country that does not have a treaty with the United States, plans to conduct manufacturing, marketing, and sales operations in the United States. These U.S. operations produce $5 million of earnings & profits in Year 1. Assume further that the U.S. operations will have a net worth of $17 million at the beginning of Year 1 and $20 million at the end of Year 1. During Year 2, the U.S. branch does not produce any earnings & profits and its net worth is $20 million at the beginning of the year and $10 million at the end of the year. For branch profits tax purposes in Year 1, the dividend equivalent amount (“DEA”) for the U.S. branch is as follows: a. $1.5 million. b. $2.0 million c. $10 million. $20 million. d. $25 million. 2. For branch profits tax purposes in Year 2, the DEA for the U.S. branch is as follows: a. $2 million. b. $3 million. c. $10 million. d. $20 million. e. $25 million. 3. USAco has its only business operations in foreign country F. Ignoring Subpart F income and the GILTI inclusion, in Year 1 the foreign operations earn $3,000,000. USAco did not repatriate any of the earnings. Which one of the following statements is true? a. If the foreign operations are operated as a subsidiary, USAco does not report any income in Year 1. b. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of loss in Year 1. c. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of DEA for Branch Profit Tax purposes in Year 1. d. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of income in Year 1 because the operations do not constitute Subpart F income. e. If the foreign operations are operated as a branch, USAco has $3,000,000 of loss in Year 1. 4. USAco has its only business operations in foreign country F. In Year 2 (the year subsequent to Year 1 in the previous question), the foreign operations lose $3,000,000. USAco did not repatriate any current or accumulated earnings from the foreign operations. Ignoring Subpart F income and the GILTI inclusion, which one of the following statements is true? a. If the foreign operations are operated as a subsidiary, USAco reports a loss of $3,000,000 in Year 2. b. If the foreign operations are operated as a subsidiary, USAco has a $3,000,000 loss in Year 2 due to the §956 inclusion. c. If the foreign operations are operated as a subsidiary, USAco has a profit in Year 2 due to Subpart F. d. If the foreign operations are operated as a branch, USAco has a $3,000,000 loss in Year 2. e. If the foreign operations are operated as a branch, USAco does not report any income or loss in Year 2. 5. USAco, a domestic corporation, exports widgets on which it earns annual gross income of $1.5 million. USAco purchases the widgets from UNF Productions, a Florida corporation. On all export sales, title passes in the country of the foreign customer. Which one of the following statements is true? a. USAco has $1.5 million of foreign‑source income. b. Because USAco purchases the widgets that it exports, USAco has $0.75 million of foreign‑source income. c. USAco cannot take a foreign tax credit because USAco purchases the widgets in the United States. d. All of the above. e. None of the above.

ForCo, a corporation that is incorporated in a foreign country that does not have a treaty with the United States, plans to conduct manufacturing, marketing, and sales operations in the United States. These U.S. operations produce $5 million of earnings & profits in Year 1. Assume further that the U.S. operations will have a net worth of $17 million at the beginning of Year 1 and $20 million at the end of Year 1. During Year 2, the U.S. branch does not produce any earnings & profits and its net worth is $20 million at the beginning of the year and $10 million at the end of the year. For branch profits tax purposes in Year 1, the dividend equivalent amount (“DEA”) for the U.S. branch is as follows: a. $1.5 million. b. $2.0 million c. $10 million. $20 million. d. $25 million. 2. For branch profits tax purposes in Year 2, the DEA for the U.S. branch is as follows: a. $2 million. b. $3 million. c. $10 million. d. $20 million. e. $25 million. 3. USAco has its only business operations in foreign country F. Ignoring Subpart F income and the GILTI inclusion, in Year 1 the foreign operations earn $3,000,000. USAco did not repatriate any of the earnings. Which one of the following statements is true? a. If the foreign operations are operated as a subsidiary, USAco does not report any income in Year 1. b. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of loss in Year 1. c. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of DEA for Branch Profit Tax purposes in Year 1. d. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of income in Year 1 because the operations do not constitute Subpart F income. e. If the foreign operations are operated as a branch, USAco has $3,000,000 of loss in Year 1. 4. USAco has its only business operations in foreign country F. In Year 2 (the year subsequent to Year 1 in the previous question), the foreign operations lose $3,000,000. USAco did not repatriate any current or accumulated earnings from the foreign operations. Ignoring Subpart F income and the GILTI inclusion, which one of the following statements is true? a. If the foreign operations are operated as a subsidiary, USAco reports a loss of $3,000,000 in Year 2. b. If the foreign operations are operated as a subsidiary, USAco has a $3,000,000 loss in Year 2 due to the §956 inclusion. c. If the foreign operations are operated as a subsidiary, USAco has a profit in Year 2 due to Subpart F. d. If the foreign operations are operated as a branch, USAco has a $3,000,000 loss in Year 2. e. If the foreign operations are operated as a branch, USAco does not report any income or loss in Year 2. 5. USAco, a domestic corporation, exports widgets on which it earns annual gross income of $1.5 million. USAco purchases the widgets from UNF Productions, a Florida corporation. On all export sales, title passes in the country of the foreign customer. Which one of the following statements is true? a. USAco has $1.5 million of foreign‑source income. b. Because USAco purchases the widgets that it exports, USAco has $0.75 million of foreign‑source income. c. USAco cannot take a foreign tax credit because USAco purchases the widgets in the United States. d. All of the above. e. None of the above.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter17: Multinational Financial Management

Section: Chapter Questions

Problem 16P: FOREIGN INVESTMENT ANALYSIS After all foreign and U.S. taxes, a U.S. corporation expects to receive...

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a. $1.5 million.

b. $2.0 million

c. $10 million.

$20 million.

d. $25 million.

2. For branch profits tax purposes in Year 2, the DEA for the U.S. branch is as follows:

a. $2 million.

b. $3 million.

c. $10 million.

d. $20 million.

e. $25 million.

3. USAco has its only business operations in foreign country F. Ignoring Subpart F income and the GILTI inclusion, in Year 1 the foreign operations earn $3,000,000. USAco did not repatriate any of the earnings. Which one of the following statements is true?

a. If the foreign operations are operated as a subsidiary, USAco does not report any income in Year 1.

b. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of loss in Year 1.

c. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of DEA for Branch Profit Tax purposes in Year 1.

d. If the foreign operations are operated as a subsidiary, USAco has $3,000,000 of income in Year 1 because the operations do not constitute Subpart F income.

e. If the foreign operations are operated as a branch, USAco has $3,000,000 of loss in Year 1.

4. USAco has its only business operations in foreign country F. In Year 2 (the year subsequent to Year 1 in the previous question), the foreign operations lose $3,000,000. USAco did not repatriate any current or accumulated earnings from the foreign operations. Ignoring Subpart F income and the GILTI inclusion, which one of the following statements is true?

a. If the foreign operations are operated as a subsidiary, USAco reports a loss of $3,000,000 in Year 2.

b. If the foreign operations are operated as a subsidiary, USAco has a $3,000,000 loss in Year 2 due to the §956 inclusion.

c. If the foreign operations are operated as a subsidiary, USAco has a profit in Year 2 due to Subpart F.

d. If the foreign operations are operated as a branch, USAco has a $3,000,000 loss in Year 2.

e. If the foreign operations are operated as a branch, USAco does not report any income or loss in Year 2.

5. USAco, a domestic corporation, exports widgets on which it earns annual gross income of $1.5 million. USAco purchases the widgets from UNF Productions, a Florida corporation. On all export sales, title passes in the country of the foreign customer. Which one of the following statements is true?

a. USAco has $1.5 million of foreign‑source income.

b. Because USAco purchases the widgets that it exports, USAco has $0.75 million of foreign‑source income.

c. USAco cannot take a foreign tax credit because USAco purchases the widgets in the United States.

d. All of the above.

e. None of the above.

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