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dividing llc income Martin Farley and Ashley Clark formed a limited liability co

ID: 2526412 • Letter: D

Question

dividing llc income

Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $69,000 and $55,000 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:2. The two members withdrew amounts equal to their salary allowances. Revenues were $668,000 and expenses were $520,000, for a net income of $148,000.

a. Determine the division of $148,000 net income for the year.

b. Provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. For a compound transaction, if an amount box does not require an entry, leave it blank.

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?

If the net income of the LLC were less than the sum of the salary allowances, members would still be credited with their salary allowances. The difference between the net income and total salary allowances would be allocated to each partner as , according to the ratio.

$

Schedule of Division of Net Income Farley Clark Total Salary allowance $ $ $ Remaining income Net income $ $

b. Provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. For a compound transaction, if an amount box does not require an entry, leave it blank.

(1) (2)

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?

If the net income of the LLC were less than the sum of the salary allowances, members would still be credited with their salary allowances. The difference between the net income and total salary allowances would be allocated to each partner as , according to the ratio.

$

Explanation / Answer

1) Apportionment of Net income of $ 148000 in 3:2 ratio

Martin farley = 148000*3/5 = $ 88800

Ashley clark = 148000*2/5 = $ 592

2) Revenue A/c Dr $668000

To Martin farley 400800

To Ashley clark 267200

( Being revenue shared among them in 3:2 ratio )

Martin farley A/c dr $ 312000

Ashley clark A/c dr $ 208000

TO Expense A/c $ 520000

(Being expenses apportioned between them )

Net income A/c dr $148000

To Martin farley a/c $ 88800

To Ashley clark $ 59200

( Being net income shared between them )

c) if the net income would be less than salary allowances , by virtue of operating agreement income would be of any amount shared in 3:2 ratio.

difference between income and salary allowance= 148000-69000-55000= $ 24000

Apportionment :

Martin = 24000*3/5 = $ 14400

ashley = 24000*2/5 = $ 9600

2) Martin A/c dr 69000

ashley A/c dr 55000

To drawings 124000