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LLC Net Income and Statement of Members' Equity Marvel Media, LLC, has three members: WLKT Partners,...

LLC Net Income and Statement of Members' Equity

Marvel Media, LLC, has three members: WLKT Partners, Madison Sanders, and Observer Newspaper, LLC. On January 1, 20Y2, the three members had equity of $180,000, $45,000, and $110,000, respectively. WLKT Partners contributed an additional $50,000 to Marvel, Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $104,400 during 20Y2. The members’ equity accounts are also credited with 18% 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 $767,463, $417,463 and $350,000 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 Amounts equal to the salary and interest allowances were withdrawn by the members.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.

Schedule of Division of Income
WLKT Partners Madison Sanders Observer Newspaper, LLC Total
Salary allowance $ $
Interest allowance $ $
Remaining income (4:3:3)
Net income $ $ $ $

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.

(1) Revenues
Expenses
WLKT Partners, Member Equity
Madison Sanders, Member Equity
Observer Newspaper, LLC, Member Equity
(2) WLKT Partners, Member Equity
Madison Sanders, Member Equity
Observer Newspaper, LLC, Member Equity
WLKT Partners, Drawing
Madison Sanders, Drawing
Observer Newspaper, LLC, Drawing

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

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 $ $ $ $
Capital additions
$ $ $ $
Net income for the year
$ $ $ $
Member withdrawals
Balances, December 31, 20Y2 $ $ $ $

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

Without an income-sharing agreement, each member would  be credited with an equal proportion of the total earnings, or one-third each. Separate contributions can  be acknowledged in the income-sharing formula.

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Answer #1

Solution a:

Schedule of Divison of income
Particulars WLKT Partners Madison Senders Observer Newspaper LLC Total
Salary Allowance $104,400.00 $104,400.00
Interest Allowance
WLKT - ($180,000*18%)
Madison - ($45,000*18%)
Observer - ($110,000*18%)
$32,400.00 $8,100.00 $19,800.00 $60,300.00
Remaining Income (350,000 - $104,400 - $60,300 = $185,300)
WLKT ($185,300*4/10)
Madison ($185,300*3/10)
Observer ($185,300*3/10)
$74,120.00 $55,590.00 $55,590.00 $185,300.00
Net Income $106,520.00 $168,090.00 $75,390.00 $350,000.00

Solution b:

Journal Entries - Marvel Media LLC
Particulars Debit Credit
Divison of net income:
Income Summary Dr $350,000.00
         To WLKT Partners, Members equity $106,520.00
         To Madison Senders Members equity $168,090.00
         To Observer Newspaper Members equity $75,390.00
(Being Net income distributed among partners)
Withdrawl of Individual Member 's Equity:
WLKT Partners Member's Equity Dr $32,400.00
Madison Senders Member's Equity Dr $112,500.00
Observer Newspaper LLC Member's Equity Dr $19,800.00
         To Cash A/c $164,700.00
(Being salary and interest withdrawn by partners)

Solution c:

Marvel Medial LLC
Statement of Member's Equity
For year ended December 31' 20Y2
Particulars WLKT Partners Madison Senders Observer Newspaper LLC Total
Balances, Janauar 1, 20Y2 $180,000.00 $45,000.00 $110,000.00 $335,000.00
Add: Capital Additions $50,000.00 $50,000.00
$230,000.00 $45,000.00 $110,000.00 $385,000.00
Add: Net Income for the year $106,520.00 $168,090.00 $75,390.00 $350,000.00
$336,520.00 $213,090.00 $185,390.00 $735,000.00
Less: Member's Withdrawl $32,400.00 $112,500.00 $19,800.00 $164,700.00
Balances, December'31 20Y2 $304,120.00 $100,590.00 $165,590.00 $570,300.00

Solution d:

Without an income sharing agreement, each member capital will be credited with an equal proportion of the total earnings or one third each. Separate contribution should be acknowledged in the income sharing formula.

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