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

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 $200,00, $40,000, $160,000 respectively. WLKT Partners contributed an additional $50,000 to Marvel Media LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $55,000 during 20Y2. The members equity accounts are also credited with 10% interest on each member's January 1 capital balance. Any remaining incomes 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 $1,260,000, $900,000, 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 Amounts equal to the salary and interest allowances were withdrawn by the members.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. b. Prepare the journal entry to close the revenues, expenses, and withdrawals to the individual's member equity accounts. c. Prepare a statement of members' equity for 20Y2 d. What are the advantages of an income sharing agreement for the members of this LLC

Explanation / Answer

a. Determine the division of income among the three members. Net income 360000 Ratio 4.3.3 Weight Share WLKT partners 4 144000 madison 3 108000 Observer 3 108000 Total 10 360000 b. Prepare the journal entry to close the revenues, expenses, and withdrawals to the individual's member equity accounts. Revenues A/c Dr 1260000 To Profit and Loss A/c 1260000 Profit and Loss DR 900000 TO Expenses 900000 WLKT partners 20000 Madison sanders 4000 Madison sanders 55000 Observer newspaper 16000 To Bank 95000 ( interest @ 10% on opening capital withdrwan by partners, and madison also withdrwan salary ) c. Prepare a statement of members' equity for 20Y2 d WLKT Madison Observer Total Opening 200000 40000 160000 400000 Add Interest 20000 4000 16000 Add salary 0 55000 0 Less withdrwan 20000 59000 16000 Add Profit 144000 108000 108000 360000 Closing Equity 344000 148000 268000 d. What are the advantages of an income sharing agreement for the members of this LLC By way of income sharing agreement there will not be any dispute between them regarding sharing of profits . 3

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