Question

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 $210,000, $55,000, and $125,000, respectively. WLKT Partners contributed an additional $50,000 to Marvel, Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $121,800 during 20Y2. The members’ equity accounts are also credited with 12% 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 $729,754, $419,754 and $310,000 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 Amounts equal to the salary and interest allowances were withdrawn by the members.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) (2) 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 be credited with an equal proportion of the total earnings, or one-third each. Separate contributions be acknowledged in the income-sharing formula.

Answer 1

a.

Schedule of Division of Income
	WLKT Partners	Madison Sanders	Observer Newspaper, LLC	Total
Salary allowance	0	121800	0	121800
Interest allowance	25200	6600	15000	46800
Remaining income (4:3:3)	56560	42420	42420	141400
Net income	81760	170820	57420	310000

b.

	Account Titles and Explanation	Debit	Credit
(1)	Income summary	310000
	WLKT Partners, Member's equity		81760
	Madison Sanders, Member's equity		170820
	Observer Newspaper, LLC, Member's equity		57420
	(To close net income)
(2)	WLKT Partners, Withdrawals	25200
	Madison Sanders, Withdrawals	128400
	Observer Newspaper, LLC, Withdrawals	15000
	Cash		168600
	(To record member withdrawals)

c.

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	210000	55000	125000	390000
Capital additions	50000	0	0	50000
	260000	55000	125000	440000
Net income for the year	81760	170820	57420	310000
	341760	225820	182420	750000
Member withdrawals	25200	128400	15000	168600
Balances, December 31, 20Y2	316560	97420	167420	581400

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