Case study of wheelco


Wheelco, a foreign corporation, manufactures motorcycles for sale worldwide. Wheelco markets its motorcycles in the United States through Wheely, a wholly-owned U.S. marketing subsidiary that derives all of its income from U.S. business operations. Wheelco also has a creditor interest in Wheely, such that Wheely's debt to equity ratio is 3 to 1, and Wheely makes annual interest payments of $60 million to Wheelco. The results from Wheely's fi rst year of operations are as follows:

Sales $180 million

Interest income $6 million

Interest expense (paid to Wheelco) ($60 million)

Depreciation expense ($30 million)

Other operating expenses ($81 million)

Pre-tax income $15 million

Assume the U.S. corporate tax rate is 35%, and that the applicable tax treaty exempts Wheelco's interest income from U.S. withholding tax. Compute Wheely's interest expense

Request for Solution File

Ask an Expert for Answer!!
Accounting Basics: Case study of wheelco
Reference No:- TGS0513574

Expected delivery within 24 Hours