Required information

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 $$210,000$ in exchange for a $50$ percent ownership interest. GTE also borrowed $$840,000$ 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 $$1,250,000$ of sales revenue and reported $$580,000$ of cost of goods sold $($it did not have any ending

inventory$).$

GTE paid $$110,000$ compensation to James, $$110,000$ compensation to Paul, and $$120,000$ of compensation to other

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

GTE paid $$31,000$ of rent for a building and equipment, $$36,000$ for advertising, $$58,800$ in interest expense, $$5,600$

for utilities, and $$3,600$ for supplies.

GTE contributed $$13,000$ to charity.

GTE received a $$4,200$ qualified dividend from a great stock investment $($it owned $2$ percent of the corporation

distributing the dividend$),$ and it recognized $$3,100$ in short$-$term capital gain when it sold some of the stock.

On December $1,2023,$ GTE distributed $$36,000$ to James and $$36,000$ to Paul.

GTE has qualified property of $$316,000($unadjusted basis$).$

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 $$36,000$ distribution he receives on December $1?$

What amount of tax does GTE pay on the $$4,200$ qualified dividend it received?