Martin Farley and Ashley Clark formed a limited liability company with an operat

Question

Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $36,400 and $28,100 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:1. The two members withdrew amounts equal to their salary allowances. Note: The reduction in members’ equity from withdrawals would be disclosed on the statement of members’ equity. Required: A. Determine the division of $149,400 net income for the year. B. On December 31, provide journal entries to close the (1) income summary and (2) drawing accounts for the two members. Refer to the Chart of Accounts for exact wording of account titles. C. If the net income were less than the sum of the salary allowances, how would income be divided between the two members of the LLC? I have the answer to A figured out.

Explanation / Answer

Journal entry

c) If net income is less than salary allowance the differnece between the two will be distributed as loss among partners

Income summary $84,900 To Martin $63,675 To Ashley $21,225 Martins drawing a/c $36,400 to cash $36,400 Xaviets drawing account $28,100 To cash $28,100

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