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 $2023,$ and each contributed $$120,000$ in exchange for a $50$ percent ownership interest. GTE also borrowed $$480,000$ 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 $2023$ activities:

GTE uses the cash method of accounting $($for both book and tax purposes$)$ and reports income on a calendar$-$year basis.

GTE received $$800,000$ of sales revenue and reported $$370,000$ of cost of goods sold $($it did not have any ending inventory$).$

GTE paid $$65,000$ compensation to James, $$65,000$ compensation to Paul, and $$75,000$ of compensation to other employees $($assume these amounts include applicable payroll taxes, if any$).$

GTE paid $$22,000$ of rent for a building and equipment, $$27,000$ for advertising, $$33,600$ in interest expense, $$4,700$ for utilities, and $$2,700$ for supplies.

GTE contributed $$8,500$ to charity.

GTE received a $$2,400$ qualified dividend from a great stock investment $($it owned $2$ percent of the corporation distributing the dividend$),$ and it recognized $$2,200$ in short$-$term capital gain when it sold some of the stock.

On December $1,2023,$ GTE distributed $$27,000$ to James and $$27,000$ to Paul.

GTE has qualified property of $$307,000($unadjusted basis$).$

Note: Leave no answers blank. Enter zero if applicable. Enter N$/$A if not applicable.

b$-3.$ Assume James and Paul formed GTE as an LLC$.$

$1.$ Compute the tax basis of Paul's ownership interest in GTE at the end of $2023.$

$2.$ What amount of Paul's income from GTE is subject to FICA or self$-$employment taxes?

$3.$ What amount of income, including its character, will Paul recognize on the $$27,000$ distribution he receives on December $1?$

$4.$ What amount of tax does GTE pay on the $$2,400$ qualified dividend it received?