Required Informatlon Form $1065$

U$.$S$.$ Return of Partnership Income

OMB No$.1545-0123$

Caution: Include only trade or business income and expenses on lines $1$a through $22$ below. See instructions for more information. b$-3.$ Assume James and Paul formed GTE as an LLC$.$

Compute the tax basis of Paul's ownership interest in GTE at the end of $2022$

$2$ 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 $$40,000$ distribution he receives on December $1?$

What amount of tax does GTE pay on the $$5\mathrm{.}000$ qualified dividend it recelved?

While James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing

careers in professional cake decorating. Thelr company, Good to Eat $($GTE$),$ speciallizes in custom$-$sculpted cakes for

weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of $2022,$ and each

contributed $$250,000$ in exchange for a $50$ percent ownership interest. GTE also borrowed $$1,000,000$ 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 $2022$ activities:

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

basis.

GTE recelved $$1,450,000$ of sales revenue and reported $$680,000$ of cost of goods sold $($It did not have any ending

Inventory$).$

GTE pald $$130,000$ compensation to James, $$130,000$ compensation to Paul, and $$140,000$ of compensation to other

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

GTE pald $$35,000$ of rent for a bullding and equipment, $$40,000$ for advertising. $$70,000$ in interest expense, $$6,000$

for utilities, and $$4,000$ for supples.

GTE contrilbuted $$15,000$ to charlty.

GTE recelved a $$5,000$ qualified dividend from a great stock investment $($it owned $2$ percent of the corporation

distributing the dividend$),$ and it recognized $$3,500$ in short$-$term capital gain when it sold some of the stock.

On December $1,2022,$ GTE distributed $$40,000$ to James and $$40,000$ to Paul.

GTE has qualfied property of $$320,000($unadjusted basis$).$

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 $2022$ tax rules regardless of year on tax form.

Employer Identification number. $58-1111111$