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 $$200,000$ in exchange for a $50$ percent ownership interest. GTE also borrowed $$800,000$ 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 $$1,200,000$ of sales revenue and reported $$560,000$ of cost of goods sold $($it did not have any ending

inventory$).$

GTE paid $$105,000$ compensation to James, $$105,000$ compensation to Paul, and $$115,000$ of compensation to other

employees $($assume these amounts include applicable payroll taxes, if any$).$

GTE paid $$30,000$ of rent for a building and equipment, $$35,000$ for advertising, $$56,000$ in interest expense, $$5,500$

for utilities, and $$3,500$ for supplies.

GTE contributed $$12,500$ to charity.

GTE received a $$4,000$ qualified dividend from a great stock investment $($it owned $2$ percent of the corporation

distributing the dividend$),$ and it recognized $$3,000$ in short$-$term capital gain when it sold some of the stock.

On December $1,2023,$ GTE distributed $$35,000$ to James and $$35,000$ to Paul.

GTE has qualified property of $$315,000($unadjusted basis$).$

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

a$-3.$ Assume James and Paul formed GTE as an S 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 $$35,000$ distribution he receives on December $1?$

What amount of tax does GTE pay on the $$4,000$ qualified dividend it received?

Answer is complete but not entirely correct.