Popp Owns 100% of the Outstanding Common Stock of Soda

Essay

Popp owns 100% of the outstanding common stock of Soda, a foreign subsidiary located in a country that has a 30% income tax rate and a 10% dividend withholding tax. Assume that the income tax rate in the United States is 45%. Soda reported net income of $70,000 for 2006 and remitted $35,000 of these earnings as dividends to the parent in 2006. The remaining earnings are expected to be remitted in 2007 or 2008.
Required:
a. Determine the total amount of income taxes relating to the foreign subsidiary that should be shown in the consolidated income statement for 2006.
b. Determine the total amount of income tax expense relating to the foreign subsidiary that should be provided in the parent's books for 2006.