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Problem Calcs 86. While James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company. Good to Eat (GTE). specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2021, and each contributed $50.000 in exchange for a 50 percent ownership interest. GTE also borrowed $200.000 from a local bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the business. The following information pertains to GTE's 2021 activities: . GTE uses the cash method of accounting (for both book and tax purposes and reports income on a calendar-year basis. GTE received $450,000 of sales revenue and reported $210,000 of cost of goods sold (it did not have any ending inventory). GTE paid $30,000 compensation to James. $30.000 compensation to Paul, and $40,000 of compensation to other employees (assume these amounts include applicable payroll taxes, if any). . GTE paid $15,000 of rent for a building and equipment, $20,000 for advertising. $14.000 in interest expense. $4.000 for utilities, and $2,000 for supplies. GTE contributed $5,000 to charity. GTE received a $1.000 qualified dividend from a great stock investment (it owned 2 percent of the corporation distributing the dividend), and it recognized $1.500 in short-term capital gain when it sold some of the stock. . On December 1, 2021. GTE distributed $20,000 to James and $20.000 to Paul. . GTE has qualified property of $300,000 (unadjusted basis). REQUIRED Assume James and Paul formed GTE as an $ Corp Compute the tax basis of Paul's stock in GTE at the end of 2021. What amount of Paul's income From GTE is subject to FICA or self-employment taxes? What amount of income, including its character, will Paul recognize on the $20,0000 distribution he receives on December 1? What amount of tax does GTE pay on the $1,000 dividend it received? b. Assume James and Paul formed GTE as an LLC Compute the tax basis of Paul's ownership interest in GTE at the end of 2021 What amount of Paul's income From GTE is subject to FICA or self-employment taxes? What amount of income, including its character, will Paul recognise on the $20,0000 distribution he receives on December 1? What amount of tax docs GTE pay on the S1,000 dividend it received? 6. Assume James and Paul formed GTE asa Corporation Compute the tax basis of Paul's stock in GTE at the end of 2021. What amount of Paul's income From OTE is subject to FICA or self-employment taxes? What amount of income, including its character, will Paul recognise on the $20,0000 distribution he receives on December 1? What amount of tax docs GTE pay on the $1.000 dividend it received USE THE SPREADSHEET ON THE NEXT TAB TO MAKE THE CALCULATIONS drer) s Corp dr (Cr) LLC Beginning Trial Balance Cash dr (c) C Corp 250.000 -200,000 Bank loan Capital contributions James Craig Paul Dolittle -50,000 -50,000 -450,000 210,000 30,000 30,000 40.000 2018 transactions Sales revenue Cost of goods sold Compensation: James Paul Other Other expenses: Rent Advertising Interest expense Utilities Supplies Contributions Dividend income (Q) (owned 2%) STCG 15,000 20,000 14,000 4,000 2.000 5.000 -1,000 -1.500 Distributions: James Paul 20,000 20,000 Net (income) 0 0 0 S0000 QUESTIONS TO BE ANSWERED: For Paul Tax basis: Beginning contribution Share of ordinary income Share of debt Share of SS income Share of SS expenses Distributions Ending tax basis Amst subj to FICA SE TR Amticharacter of distribution Amtof tax GTE pays on dividend IF THERE IS TIME Assume Paul is single, has a marginal tax rate of 24%, and itemizes his deductions. What is his TOTAL tax burden