Owl Vision Corporation (OVC) is a North Carolina corporation engaged in the manufacture and sale of contact lenses and other optical equipment. The company handles its export sales through sales branc

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09.07.2022 - 06:02

Owl Vision Corporation (OVC) is a North Carolina corporation engaged in the manufacture and sale of contact lenses and other optical equipment. The company handles its export sales through sales branc

Question:

Owl Vision Corporation (OVC) is a North Carolina corporation engaged in the manufacture and sale of contact lenses and other optical equipment. The company handles its export sales through sales branches in Belgium and Singapore. The average tax book value of OVC’s assets for the year was $150 million, of which $120 million generated U.S. source income and $30 million generated foreign source income. The average fair market value of OVC’s assets was $180 million, of which $135 million generated U.S. source income and $45 million generated foreign source income. OVC’s total interest expense was $15 million.

What amount of the interest expense will be apportioned to foreign source income under the fair market value method?

Answers (1)

Bonita April 19, 2023 в 12:28

Under the fair market value method, the interest expense apportionment is based on the average fair market value of the assets. Therefore, out of the total interest expense of $15 million, $4.5 million (i.e. $15 million / $180 million x $45 million) will be apportioned to foreign source income.

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