Marvel Media, LLC, has three members: WLKT Partners, Madison Sanders, and Observ

Question

Marvel Media, LLC, has three members: WLKT Partners, Madison Sanders, and Observer Newspaper, LLC. On January 1, 20Y2, the three members had equity of $240,000, $60,000, and $145,000, respectively. WLKT Partners contributed an additional $60,000 to Marvel, Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $139,200 during 20Y2. The members’ equity accounts are also credited with 12% interest on each member's January 1 capital balance. Any remaining income is to be shared in the ratio of 4:3:3 among the three members. The revenues, expenses, and net income for Marvel Media, LLC, for 20Y2 were $909,661, $549,661 and $360,000 respectively. Amounts equal to the salary and interest allowances were withdrawn by the members.

a. Determine the division of income among the three members. If an amount box does not require an entry, leave it blank.

WLKT MADIS OBS TOTAL

b. Prepare the journal entries to close the (1) net income and (2) withdrawals to the individual member equity accounts. For a compound entry, if an amount box does not require an entry, leave it blank.

_________ ____ ____

_________ ____ ____

_________ ____ ____

________ _____ _____

c. Prepare a statement of members' equity for 20Y2. If an amount box does not require an entry, leave it blank.

d What are the advantages of an income-sharing agreement for the members of this LLC?

Without an income-sharing agreement, each member (WOULD/WOULD NOT) be credited with an equal proportion of the total earnings, or one-third each. Separate contributions (CAN/CANNOT) be acknowledged in the income-sharing formula.

Salary allowance $ $ $ $ Interest allowance $ $ $ $ Remaining income (4:3:3) $ $ $ $ Net income $ $ $ $

Explanation / Answer

a. WLKT Partners Madison Sanders Observer Newspaper, LLC Total Salary allowance $139,200 $139,200 Interest allowance            28,800              7,200          17,400            53,400 Remaining income (4:3:3)            66,960            50,220          50,220          167,400 Net Income $        95,760 $      196,620 $      67,620 $      360,000 1 12% x $240,000 = 28800 2 12% x $60,000 = 7200 3 12% x $145,000 = 17400 b. Dec 31, 20Y2 Income Summary          360,000 WLKT Partners, Member Equity            95,760 Madison Sanders, Member Equity          196,620 Observer Newspaper, LLC, Member Equity            67,620 Dec 31, 20Y2 WLKT Partners, Member Equity            28,800 Madison Sanders, Member Equity*          146,400 Observer Newspaper, LLC, Member Equity     17,400 WLKT Partners, Drawing            28,800 Madison Sanders, Drawing          146,400 Observer Newspaper, LLC, Drawing            17,400 * $139,200 + $7,200 c MARVEL MEDIA. LLC Statement of Members' Equity For the Year Ended December 31, 20Y2 WLKT Partners Madison Sanders Observer Newspaper, LLC Total Balances, January 1, 20Y2 $240,000 $60,000 $145,000 $445,000 Capital additions 60,000 60,000 $300,000 $60,000 $145,000 $505,000 Net income for the year 95,760 196,620 67,620 360,000 $395,760 $256,620 $212,620 865,000 Member withdrawals 28,800 146,400 17,400 192,600 Balances, December 31, 20Y2 $366,960 $110,220 $195,220 $672,400 d Without an income-sharing agreement, each member (WOULD) be credited with an equal proportion of the total earnings, or one-third each. Separate contributions (CANNOT) be acknowledged in the income-sharing formula.

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