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 $2 million and a fair market value of $5 million. Create’s interest expense totaled $400,000 for the current year
a. What amount of Create’s interest expense is allocated and apportioned to foreign-source income using the tax book value method? Using the fair market method?
b. If Create wants to maximize its FTC, which method should it use?