_____ Panex Owns 100% of the Outstanding Common Stock of Sanex

Multiple Choice

_____ Panex owns 100% of the outstanding common stock of Sanex, a foreign subsidiary located in a country having a 20% income tax rate and a 5% dividend withholding tax. For 2006, Sanex reported net income of $600,000 and paid dividends of $300,000. Concerning the 2006 undistributed earnings of $300,000, Panex's intent is to have Sanex (a) distribute $200,000 as dividends when cash becomes available and (b) reinvest $100,000 indefinitely (to be used for internal expansion) . Assume a 40% U.S. income tax rate. How much should Panex record on its books in 2006 for income tax expense pertaining to Sanex's 2006 earnings?

A) $ -0-
B) $60,000
C) $75,000
D) $100,000
E) $125,000