Create, Inc., produces inventory in its foreign manufacturing plants for sale in the United States. Its foreign manufacturing assets have a tax book value of $5 million and a fair market value of $15 million. Its assets related to the sales activity have a tax book value of $200000 and a fair market value of $50000. Create s interest expense totaled $300000 for the current year.
a. What amount of interest expense is allocated and apportioned to foreign-source income using the tax book value method? What amount of Create s interest expense is allocated and apportioned to foreign-source income using the fair market method?
b. If Create wishes to maximize its FTC, which method should it use?