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 $$50,000$ in exchange for a $50$ percent ownership interest. GTE also borrowed $$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 $2023$ activities:

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

GTE received $$450,000$ of sales revenue and reported $$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 $1,2023,$ GTE distributed $$20,000$ to James and $$20,000$ to Paul.

GTE has qualified property of $$300,000($unadjusted basis$).$

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

c$-2.$ Assume James and Paul formed GTE as a C corporation.

Compute the tax basis of Paul's stock in GTE at the end of $2023.$

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 $$20,000$ distribution he receives on December $1?$

What amount of tax does GTE pay on the $$1,000$ qualified dividend it received?

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 $$50,000$ in exchange for a $50$ percent ownership interest. GTE also borrowed $$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 $2023$ activities:

GTE uses the cash method of accounting $($for both book and tax purposes$)$ and reports income bn 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 $1,2023,$ GTE distributed $$20,000$ to James and $$20,000$ to Paul.

GTE has qualified property of $$300,000($unadjusted basis$).$

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

a$-1.$ Assume James and Paul formed GTE as an S corporation.

Complete GTE's Form $1120-$S$,$ page $1$; Form $1120-$S$,$ Schedule K$.$

Note: Use $2023$ tax rules regardless of year on tax form.

Employer identification number: $58-1111111$

Complete GTE's Form $1120-$S$,$ page $1$; Form $1120-$S$,$ Schedule K$.$

$1120$S page $1$:

$\backslash$table$[[1120S$