Marvel Media, LLC, has three members: WLKT Partners, Madison Sanders, and Observer Newspaper, LLC. On January 1, 20Y2, the three members had equity of $207,400, $43,000, and $165,200, respectively. WLKT Partners contributed an additional $49,800 to Marvel Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $50,700 during 20Y2. The members’ equity accounts are also credited with 10% 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. members. The revenues, expenses, and net income for Marvel Media, LLC, for 20Y2 were $1,186,500, 858,700 and $327,800 respectively. Amounts equal to the salary and interest allowances were withdrawn by the members.
Required: | |
A. | Determine the division of income among the three members. |
B. | Prepare the journal entries to close the net income and withdrawals to the individual member equity accounts. Refer to the Chart of Accounts for exact wording of account titles. |
C. | Prepare a statement of members’ equity for 20Y2. |
D. | What are the advantages of an income-sharing agreement for the members of this LLC? |
a) | |||||
WLKT Partners | Madison sanders | Observer Newspaper LLC | Total | ||
Salary allowance | $ 50,700 | $ 50,700 | |||
Interest Allowance | $ 20,740 | $ 4,300 | $ 16,520 | $ 41,560 | |
{$ 207,400 *10 %} | {$ 43,000 *10 %} | {$ 165,200 *10 %} | |||
Remaining income (4:3:3 ) | $ 94,216 | $ 70,662 | $ 70,662 | $ 235,540 | |
{$235,540 *4/10 } | {$235,540 *3/10 } | {$235,540 *3/10 } | |||
Net income | $ 114,956 | $ 125,662 | $ 87,182 | $ 327,800 | |
Explanation : | |||||
Remaining income = net income - (interest allowance+Salary allowance ) | |||||
Remaining income = $ 327,800 - ($ 50,700 +$ 41,560 ) | |||||
Remaining income = $ 235,540 |
b) | ||||
Date | General journal | Debit | Credit | |
Dec 31,20Y2 | Income summary | $ 327,800 | ||
WLKT Partners , Member Equity | $ 114,956 | |||
Madison sanders ,Member Equity | $ 125,662 | |||
Observer Newspaper LLC ,Member Equity | $ 87,182 | |||
(To record Net income Transfer to the Member's Equity ) | ||||
Dec 31,20Y2 | WLKT Partners , Member Equity | $ 20,740 | ||
Madison sanders ,Member Equity(50,700+4300) | $ 55,000 | |||
Observer Newspaper LLC ,Member Equity | $ 16,520 | |||
WLKT Partners , Drawing | $ 20,740 | |||
Madison sanders ,Drawing | $ 55,000 | |||
Observer Newspaper LLC ,Drawing | $ 16,520 | |||
(To record Drawings transfer to Member's equity) |
C)
MARVEL MEDIA , LLC | ||||
Statement of member's Equity | ||||
For the year year ended December 31,20Y2 | ||||
WLKT Partners | Madison sanders | Observer Newspaper LLC | Total | |
Member's equity, Jan1 20Y2 | $ 207,400 | $ 43,000 | $ 165,200 | $ 415,600 |
Additional investment during the year | $ 49,800 | $ 49,800 | ||
$ 257,200 | $ 43,000 | $ 165,200 | $ 465,400 | |
Net income for the year | $ 114,956 | $ 125,662 | $ 87,182 | $ 327,800 |
$ 372,156 | $ 168,662 | $ 252,382 | $ 793,200 | |
Withdrawals during the year | ($20,740 ) | ($55,000) | ($16,520) | ( $92,260) |
Member's equity, Dec 31, 20Y2 | $ 351,416 | $ 113,662 | $ 235,862 | $ 700,940 |
D) | An Income sharing agreement provides Flexibility and fairness. Without an Income sharing agreement , Each Member | ||||
having equal proportion of the total earnings.However, the members provide different capital and effort to the LLC , | |||||
Here, WLKT is higher contribution ( $ 207,400 ). While Madison sanders also providing ongoing effort and expertise. | |||||
So,these separate contribution will acknowledged in income sharing formula. Hence, agreement credits member | |||||
equity for both interest on capital and salary allowance for Madison sanders. Any remaining income is to be credited | |||||
to capital as per agreement that is ( 4 : 3 : 3 ). |
Marvel Media, LLC, has three members: WLKT Partners, Madison Sanders, and Observer Newspaper, LLC. On January...
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