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 $$240,000$ in exchange for a $50$ percent ownership interest. GTE also borrowed $$960,000$ 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 $$1,400,000$ of sales revenue and reported $$650,000$ of cost of goods sold $($it did not have any ending inventory$).$

GTE paid $$125,000$ compensation to James, $$125,000$ compensation to Paul, and $$135,000$ of compensation to other employees $($assume these amounts include applicable payroll taxes, if any$).$

GTE paid $$34,000$ of rent for a building and equipment, $$39,000$ for advertising, $$67,200$ in interest expense, $$5,900$ for utilities, and $$3,900$ for supplies.

GTE contributed $$14,500$ to charity.

GTE received a $$4,800$ qualified dividend from a great stock investment $($it owned $2$ percent of the corporation distributing the dividend$),$ and it recognized $$3,400$ in short$-$term capital gain when it sold some of the stock.

On December $1,2023,$ GTE distributed $$39,000$ to James and $$39,000$ to Paul.

GTE has qualified property of $$319,000($unadjusted basis$).$

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

Comprehensive Problem $22-86($Algo$)$ Part a$-1$

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: $58-1111111$