Question 51. (LO 2) {Planning} Owl Vision Corporation (OVC) is a North Car

51. (LO 2) {Planning} Owl Vision Corporation (OVC) is a North Carolina corporation engaged in the manufacture and sale of contact lens and other optical equipment. The company handles its export sales through sales branches in Belgium and Singapore. The average tax book value of OVC’s assets for the year was $200 million, of which $160 million generated U.S. source income and $40 million generated foreign source income. The average fair market value of OVC’s assets was $240 million, of which $180 million generated U.S. source income and $60 million generated foreign source income. OVC’s total interest expense was $20 million.

a. What amount of the interest expense will be apportioned to foreign source income under the tax book value method?

b. What amount of the interest expense will be apportioned to foreign source income under the fair market value method?

c. If Owl wants to maximize its foreign tax credit limitation, which method produces the better outcome?

52. (LO 2) {Planning} Freon Corporation, a U.S. corporation, manufactures air-conditioning and warm air heating equipment. Freon reported gross sales from this product group of $50,000,000, of which $10,000,000 were foreign source. The gross profit percentage for domestic sales was 15%, and the gross profit percentage from non-U.S. sales was 20%. Freon incurred R&E expenses of $6,000,000, all of which were conducted in the United States.

a. What amount of the R&E expense will be apportioned to foreign source income under the sales method?

b. What amount of the R&E expense will be apportioned to foreign source income under the gross income method?

$1,125,000

c. If Freon wants to maximize its foreign tax credit limitation, which method produces the better outcome?

53. (LO 3) {research} Colleen is a citizen and bona fide resident of Ireland. During the current year, she received the following income:

• Cash dividends of $2,000 from a U.S. corporation stock
• Interest of $1,000 on a U.S. corporation bond
• Royalty of $100,000 from a U.S. corporation for use of a patent she developed
• Rent of $3,000 from U.S. individuals renting her cottage in Maine

Identify the U.S. withholding tax rate on the payment of each item of income under the U.S.-Ireland income tax treaty and cite the appropriate treaty article. You can access the 1997 U.S.-Ireland income tax treaty on the IRS website, www.irs.gov.

54. (LO 4) Gameco, a U.S. corporation, operates gambling machines in the United States and abroad. Gameco conducts its operations in Europe through a Dutch B.V., which is treated as a branch for U.S. tax purposes. Gameco also licenses game machines to an unrelated company in Japan. During the current year, Gameco paid the following foreign taxes, translated into U.S. dollars at the appropriate exchange rate:

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