Engco, a U.S. corporation, produces industrial engines at its U.S. plant for sale in the United States and Canada. During the current year, Engco's total sales to Canadian customers are $10 million...

Engco, a U.S. corporation, produces industrial engines at its U.S. plant for sale in the United States and Canada. During the current year, Engco's total sales to Canadian customers are $10 million and the related cost of goods sold is $7 million. Title passes in Canada on all engine sales to Canadian customers


a. How much of Engco's export gross profit of $3 million (export sales of $10 million less
$7 million cost of goods sold) is classified as foreign-source tor U.S. tax purposes?
b. Now assume that the facts are the same as in part (a), except that EngCo is a distributor that purchases the ensines trom indevendent third parties tor sale to customers in both the United States and Canada. How much of Engco's export gross profit of $3 million from Canadian sales is classitied as foreign-source tor U.S. tax purposes?