Dividing LLC Income Martin Farley and Ashley Clark formed a limited liability co
ID: 2567291 • 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 $68,000 and $54,000 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 $ $ $Explanation / Answer
Schedule of Division of Net Income
b. Journal Entries
(Expenses & Salaries of partners
are written off against revenue)
(Remaining profits are distributed
among partner in 3:2 ratio)
Farley Clark Total Salary Allowance 68000 54000 122000 Remaining Income 15600 10400 26000 Net Income 83600 64400 148000