3nquestions 494807 | Homework Solutions

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Question 4 and 5: Suggested time 30 minutes: 15% points: Shake Shack Burger, a US based company, establishes an operation in the UK in January 1, 2012, when the exchange rate is USD $1.50 per GBP (pound). During Year 1, the UK branch generates GBP 5,000,000 of pretax income. On October 15, 2012, GBP 2,000,000 is repatriated to Shake Shack Burger and converted to USD. Assume the effective income tax in the UK is 30 percent. Taxes were paid in the UK on December 31, 2012. Relevant exchange rates for 2012 year are provided here (USD per GBP) January 1 …………1.50 Average 30 ……….1.45 October 15………..1.35 December 31……..1.30 Assume a US tax rate of 35 percent. Instructions Assuming that Shake Shack’s operation in the UK is registered with the UK government as branch, determine the amount of US taxable income, US foreign tax credit and net US tax liability related to the UK branch (all in US dollars). Assuming that Shake Shacks’s operation in the UK is incorporated as a subsidiary, determine the amount of US taxable income, US foreign tax credit and net US tax liability related to the UK branch (all in US dollars). Question 2: Suggested time 20 minutes: 10% points: Cinchcast Company begins its operations on January 1, 2012. The company’s unadjusted financial statements for the year ended December 31, 2012 are as follows: Balance Sheet January 1, 2012 December 31, 2012 Cash and receivables $20,000 $35,000 Fixed assets, net $50,000 $45,000 TOTAL $70,000 $80,000 Payables $15,000 $15,000 Capital $55,000 $55,000 Retained earnings $0 $10,000 TOTAL $70,000 $80,000 Income Statement December 31, 2012 Revenues $50,000 Depreciation $5,000 Other expenses $35,000 Income $10,000 Revenues and expenses occur evenly throughout the year, revenues and other expenses are realized in terms of monetary assets (cash and receivables). General price indexes for 2012 are as follows: January 1, 2012 …………….100 Average (year) 2012…

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