Maurice Tutor

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    Argosy University/ Phoniex University/
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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 03 Aug 2017 My Price 7.00

foreign corporation

Wheelco, a foreign corporation, manufactures motorcycles for sale worldwide. Wheelco markets its motorcycles in the United States through Wheely, a wholly-owned U.S. marketing subsidiary that derives all of its income from U.S. business operations. Wheelco also has a creditor interest in Wheely, such that Wheely’s debt to equity ratio is 3 to 1, and Wheely makes annual interest payments of $60 million to Wheelco. The results from Wheely’s first year of operations are as follows:

 

Sales

$180 million

Interest income

$6 million

Interest expense (paid to Wheelco)

($60 million)

Depreciation expense

($30 million)

Other operating expenses

($81 million)

Pre-tax income

$15 million

 

Assume the U.S. corporate tax rate is 35%, and that the applicable tax treaty exempts Wheelco’s interest income from U.S. withholding tax. Compute Wheely’s interest expense deduction.

 

Answers

Maurice Tutor
(5)
Status NEW Posted 03 Aug 2017 05:08 PM My Price 7.00

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