Question

2. Dividing Partnership Income

Tyler Hawes and Piper Albright formed a partnership, investing $259,200 and $172,800, respectively.

Determine their participation in the year's net income of $384,000 under each of the following independent assumptions:

1. No agreement concerning division of net income.
2. Divided in the ratio of original capital investment.
3. Interest at the rate of 18% allowed on original investments and the remainder divided in the ratio of 2:3.
4. Salary allowances of $68,000 and $94,000, respectively, and the balance divided equally.
5. Allowance of interest at the rate of 18% on original investments, salary allowances of $68,000 and $94,000, respectively, and the remainder divided equally.

	Hawes	Albright
(a)	$	$
(b)	$	$
(c)	$	$
(d)	$	$
(e)	$	$

3.

1. Dividing LLC Income

   Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $56,000 and $45,000 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.

   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.

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2.

Dividing Partnership Income

Tyler Hawes and Piper Albright formed a partnership, investing $259,200 and $172,800, respectively.

Determine their participation in the year's net income of $384,000 under each of the following independent assumptions:

1. No agreement concerning division of net income.
2. Divided in the ratio of original capital investment.
3. Interest at the rate of 18% allowed on original investments and the remainder divided in the ratio of 2:3.
4. Salary allowances of $68,000 and $94,000, respectively, and the balance divided equally.
5. Allowance of interest at the rate of 18% on original investments, salary allowances of $68,000 and $94,000, respectively, and the remainder divided equally.

	Hawes	Albright
(a)	$	$
(b)	$	$
(c)	$	$
(d)	$	$
(e)	$	$

3. Dividing LLC Income

1. Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $56,000 and $45,000 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.

   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.

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 $300,000, $75,000, and $180,000, respectively. WLKT Partners contributed an additional $80,000 to Marvel, Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $174,000 during 20Y2. The members’ equity accounts are also credited with 15% 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 $1,107,960, $597,960 and $510,000 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