Required informationWhile James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuingcareers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes forweddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2023, and eachcontributed $80,000 in exchange for a 50 percent ownership interest. GTE also borrowed $320,000 from a localbank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for thebusiness. 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-yearbasis.• GTE received $600,000 of sales revenue and reported $280,000 of cost of goods sold (it did not have any endinginventory).• GTE paid $45,000 compensation to James, $45,000 compensation to Paul, and $55,000 of compensation toother employees (assume these amounts include applicable payroll taxes, if any).• GTE paid $18,000 of rent for a building and equipment, $23,000 for advertising, $22,400 in interest expense,$4,300 for utilities, and $2,300 for supplies.• GTE contributed $6,500 to charity.• GTE received a $1,600 qualified dividend from a great stock investment (it owned 2 percent of the corporationdistributing the dividend), and it recognized $1,800 in short-term capital gain when it sold some of the stock.• On December 1, 2023, GTE distributed $23,000 to James and $23,000 to Paul.• GTE has qualified property of $303,000 (unadjusted basis).Note: Leave no answers blank. Enter zero if applicable. Enter N/A if not applicable.b-3. Assume James and Paul formed GTE as an LLC.1. Compute the tax basis of Paul's ownership interest in GTE at the end of 2023.2. What amount of Paul's income from GTE is subject to FICA or self-employment taxes?3. What amount of income, including its character, will Paul recognize on the $23,000 distribution he receives on December 1?4. What amount of tax does GTE pay on the $1,600 qualified dividend it received?1. End of Year Stock Basis2. Paul's income4. Tax

LLC corporations are known for having “Double Taxation.” which means that the LLC Corporation is…

b-3. Assume James and Paul formed GTE as an LLC. 1. Compute the tax basis of Paul's ownership interest in GTE at the end of 2023. 2. What amount of Paul's income from GTE is subject to FICA or self-employment taxes? 3. What amount of income, including its character, will Paul recognize on the $23,000 distribution he receives on December 1? 4. What amount of tax does GTE pay on the $1,600 qualified dividend it received? 1. End of Year Stock Basis 2. Paul's income 4. Tax

b-3. Assume James and Paul formed GTE as an LLC. 1. Compute the tax basis of Paul's ownership interest in GTE at the end of 2023. 2. What amount of Paul's income from GTE is subject to FICA or self-employment taxes? 3. What amount of income, including its character, will Paul recognize on the $23,000 distribution he receives on December 1? 4. What amount of tax does GTE pay on the $1,600 qualified dividend it received? 1. End of Year Stock Basis 2. Paul's income 4. Tax

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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