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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 $100,000 in exchange for a 50 percent ownership interest. GTE also borrowed $400,000 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 GTEs 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 $700,000 of sales revenue and reported $330,000 of cost of goods sold (it did not have any ending inventory).
• GTE paid $55,000 compensation to James, $55,000 compensation to Paul, and $65,000 of compensation to other employees (assume these amounts include applicable payroll taxes, if any).
• GTE paid $20,000 of rent for a building and equipment, $25,000 for advertising, $28,000 in interest expense, $4,500 for utilities, and $2,500 for supplies.
• GTE contributed $7,500 to charity.
• GTE received a $2,000 qualified dividend from a great stock investment (it owned 2 percent of the corporation distributing the dividend), and it recognized $2,000 in short-term capital gain when it sold some of the stock.
• On December 1, 2021, GTE distributed $25,000 to James and $25,000 to Paul.
• GTE has qualified property of $305,000 (unadjusted basis).

(Leave no answer blank. Enter zero if applicable. Enter N/A if not applicable.)

a-2. Complete Pauls 1120-S, Schedule K-1 for year 1. Use 2021 tax rules regardless of year on tax form.

Employer Identification Number:

Good to Eat EIN: 58-1111111

S Corporation EIN: 59-2222222

Shareholders identifying number: 111-11-1111

Schedule K Total amount 1 2 c 4 5a Income (Loss) 6 7 8 9 Shareholders' Pro Rata Share Items 1 Ordinary business income (loss) (page 1, line 21) 2 Net rental real estate income (loss) (attach Form 8825) 3a Other gross rental income (loss) b Expenses from other rental activities (attach statement) 3b c Other net rental income (loss). Subtract line 3b from line 3a 4 Interest income 5 Dividends: a Ordinary dividends b Qualified dividends 5b 6 Royalties 7 Net short-term capital gain (loss) (attach Schedule D (Form 1120-S)) 8a Net long-term capital gain (loss) (attach Schedule D (Form 1120-S)) b Collectibles (28%) gain (loss) 8b c Unrecaptured section 1250 gain (attach statement) 8c 9 Net section 1231 gain (loss) (attach Form 4797) 10 Other income (loss) (see instructions) 11 Section 179 deduction (attach Form 4562) 12a Charitable contributions b Investment interest expense c Section 59(e)(2) expenditures (1) Type (2) Amount d Other deductions (see instructions) Type : 13a Low-income housing credit (section 42(1)(5)) b Low-income housing credit (other) c Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) d Other rental real estate credits (see instructions) Type e Other rental credits (see instructions) Type f Biofuel producer credit (attach Form 6478) g Other credits (see instructions) Type 14a Name of country or U.S. possession Type 10 11 12a 12b Deductions 12c(2) 12d 13a 13b 13c Credits 13d 13e 13f 139 b Gross income from all sources Gross income sourced at shareholder level Foreign gross income sourced at corporate level 14b 14c Credits Type : 13d Type : 13e d Other rental real estate credits (see instructions) e Other rental credits (see instructions) f Biofuel producer credit (attach Form 6478) g Other credits (see instructions) 14a Name of country or U.S. possession 13f 13g Type : 14b 14c 14d 14e 14f 14g 14h Foreign Transactions 14i 14; b Gross income from all sources c Gross income sourced at shareholder level - Foreign gross income sourced at corporate level d Reserved for future use e Foreign branch category f Passive category g General category h Other (attach statement) - Deductions allocated and apportioned at shareholder level i Interest expense j Other Deductions allocated and apportioned at corporate level to foreign source income k Reserved for future use I Foreign branch category m Passive category n General category o Other (attach statement) - Other information p Total foreign taxes (check one): Paid q Reduction in taxes available for credit (attach statement) r Other foreign tax information (attach statement) 15a Post-1986 depreciation adjustment b Adjusted gain or loss c Depletion (other than oil and gas) d Oil, gas, and geothermal properties-gross income e Oil, gas, and geothermal propertiesdeductions f Other AMT items (attach statement) 14K 141 14m 14n 140 Accrued 14p 149 Alternative Minimum Tax (AMT) Items 15a 15b 15c 15d 15e 15f 16a 16b 160 16d 16a Tax-exempt interest income Items Affecting b Other tax-exempt income Shareholder c Nondeductible expenses Basis d Distributions (attach statement if required) (see instructions) e Repayment of loans from shareholders 17a Investment income Other b Investment expenses Information c Dividend distributions paid from accumulated earnings and profits d Other items and amounts (attach statement) 18 Income (loss) reconciliation. Combine the amounts on lines 1 through 10 in the far right column. From the result, subtract Reconciliation the sum of the amounts on lines 11 through 12d and 14p 16e 17a 17b 17c 18 Form 1120-S (2020) THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2021 McGraw-Hill Education. Schedule K Total amount 1 2 c 4 5a Income (Loss) 6 7 8 9 Shareholders' Pro Rata Share Items 1 Ordinary business income (loss) (page 1, line 21) 2 Net rental real estate income (loss) (attach Form 8825) 3a Other gross rental income (loss) b Expenses from other rental activities (attach statement) 3b c Other net rental income (loss). Subtract line 3b from line 3a 4 Interest income 5 Dividends: a Ordinary dividends b Qualified dividends 5b 6 Royalties 7 Net short-term capital gain (loss) (attach Schedule D (Form 1120-S)) 8a Net long-term capital gain (loss) (attach Schedule D (Form 1120-S)) b Collectibles (28%) gain (loss) 8b c Unrecaptured section 1250 gain (attach statement) 8c 9 Net section 1231 gain (loss) (attach Form 4797) 10 Other income (loss) (see instructions) 11 Section 179 deduction (attach Form 4562) 12a Charitable contributions b Investment interest expense c Section 59(e)(2) expenditures (1) Type (2) Amount d Other deductions (see instructions) Type : 13a Low-income housing credit (section 42(1)(5)) b Low-income housing credit (other) c Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) d Other rental real estate credits (see instructions) Type e Other rental credits (see instructions) Type f Biofuel producer credit (attach Form 6478) g Other credits (see instructions) Type 14a Name of country or U.S. possession Type 10 11 12a 12b Deductions 12c(2) 12d 13a 13b 13c Credits 13d 13e 13f 139 b Gross income from all sources Gross income sourced at shareholder level Foreign gross income sourced at corporate level 14b 14c Credits Type : 13d Type : 13e d Other rental real estate credits (see instructions) e Other rental credits (see instructions) f Biofuel producer credit (attach Form 6478) g Other credits (see instructions) 14a Name of country or U.S. possession 13f 13g Type : 14b 14c 14d 14e 14f 14g 14h Foreign Transactions 14i 14; b Gross income from all sources c Gross income sourced at shareholder level - Foreign gross income sourced at corporate level d Reserved for future use e Foreign branch category f Passive category g General category h Other (attach statement) - Deductions allocated and apportioned at shareholder level i Interest expense j Other Deductions allocated and apportioned at corporate level to foreign source income k Reserved for future use I Foreign branch category m Passive category n General category o Other (attach statement) - Other information p Total foreign taxes (check one): Paid q Reduction in taxes available for credit (attach statement) r Other foreign tax information (attach statement) 15a Post-1986 depreciation adjustment b Adjusted gain or loss c Depletion (other than oil and gas) d Oil, gas, and geothermal properties-gross income e Oil, gas, and geothermal propertiesdeductions f Other AMT items (attach statement) 14K 141 14m 14n 140 Accrued 14p 149 Alternative Minimum Tax (AMT) Items 15a 15b 15c 15d 15e 15f 16a 16b 160 16d 16a Tax-exempt interest income Items Affecting b Other tax-exempt income Shareholder c Nondeductible expenses Basis d Distributions (attach statement if required) (see instructions) e Repayment of loans from shareholders 17a Investment income Other b Investment expenses Information c Dividend distributions paid from accumulated earnings and profits d Other items and amounts (attach statement) 18 Income (loss) reconciliation. Combine the amounts on lines 1 through 10 in the far right column. From the result, subtract Reconciliation the sum of the amounts on lines 11 through 12d and 14p 16e 17a 17b 17c 18 Form 1120-S (2020) THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2021 McGraw-Hill Education