Horton Corporation Is a 100 Percent Owned Canadian Subsidiary of Cruller

Multiple Choice

Horton Corporation is a 100 percent owned Canadian subsidiary of Cruller Corporation, a U.S. corporation. Horton had post-1986 earnings and profits of C$2,400,000 and post-1986 foreign taxes of $1,600,000. During the current year, Horton paid a dividend of C$600,000 to Cruller. The dividend was characterized as general category income for FTC purposes. The dividend was subject to a withholding tax of C$30,000. Assume an exchange rate of C$1 = $1. Cruller reported U.S. taxable income of $2,000,000. Cruller's U.S. tax rate is 34 percent. Compute the tax consequences to Cruller as a result of this dividend.

A) Taxable income of $3,000,000, a net U.S. tax of $590,000, and a FTC carryover of $0
B) Taxable income of $3,000,000, a net U.S. tax of $680,000, and a FTC carryover of $90,000
C) Taxable income of $2,600,000, a net U.S. tax of $680,000, and a FTC carryover of $226,000
D) Taxable income of $2,600,000, a net U.S. tax of $454,000, and a FTC carryover of $0