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ovar Inc., a U.S. multinational, began operations this year. Jovar had pretax U.S. source income and foreign source income as follows: U.S. source income $ 600,000 Foreign source income—Country O 100,000 Total $ 700,000 Jovar paid $50,000 income tax to Country O. Compute Jovar's U.S. tax liability if it takes the foreign tax credit.

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Answer:

$204,000

Explanation:

Computation of Jovar's U.S. tax liability

First step isnto determine the U.S precredit tax.

34%×$700,000

=$238,000

U.S Precredit tax = $238,000

Second step is to calculate the foreign tax credit.

Therefore the Credit is limited to:

$238,000 * 100/700

= $34,000.

Hence:

$238,000-$34,000

=$204,000

Therefore Jovar's U.S. tax liability if it takes the foreign tax credit will be $204,000

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