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 $270,000, $70,000, and $160,000, respectively. WLKT Partners contributed an additional $70,000 to Marvel, Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $156,600 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 $543,753, $143,753 and $400,000 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 Amounts equal to the salary and interest allowances were withdrawn by the members.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.		Allocation of partnership income
						WLKT	Madison	Observer	Total
	Net income								400000
	Salary allowances						156600		156600
	Balance of income								243400
	Interest allowances					32400	8400	19200	60000
	(Jan 1 capital balance*10%)					(270000*12%)	(70000*12%)	(160000*12%)
	Balance of income								183400
	Balance allocated at 4:3:3					73360	55020	55020	183400
						(183400*4/10)	(183400*3/10)	(183400*3/10)
	Balance of income								0
	Share of the partners					105760	220020	74220	400000
B.	Date	Account titles					Debit	Credit
	Dec 31.	Income summary					400000
		WLKT partners,Member equity						105760
		Madison sanders,Member equity						220020
		Observer newspaper,LLC,Member equity						74220
		(To close net income)
	Dec 31.	WLKT partners,Member equity					32400
		Madison sanders,Member equity					165000
		Observer newspaper,LLC,Member equity					19200
		WLKT partners,Drawing				(0+32400)		32400
		Madison sanders,Drawing				(156600+8400)		165000
		Observer newspaper,LLC,Drawing				(0+19200)		19200
		(Drawings=Salary allowance+Interest allownace)
		(To close withdrawals)
C.			Statement of member's equity:
						WLKT	Madison	Observer	Total
	Balance as on Jan 1.					270000	70000	160000	500000
	Add:
	Contributions					70000	0	0	70000
	Net income					105760	220020	74220	400000
						445760	290020	234220	970000
	Less:Drawings					32400	165000	19200	216600
	Balance as on Dec 31.					413360	125020	215020	753400
d.	Advantages:
	This income sharing agreement considers based on capital contribution and member's level of expertise
	Interest allowance considers capital contribution
	Salary allowance considers member's level of expertise
	Without an income sharing agreement,each member would be credited with an equal proportion of the total earnings, or one-third each.
	Separate contributions should be acknowledged in the income-sharing formula