Question

Ch 12-3 Exercises and Problems 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 $185,000, $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 $107,300 during 2012. 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 $577,603, $217,603 and $360,000 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 Amounts equal to the salary and interest allowances were withdrawn by the members.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 Observer Newspaper, Total Madison Sanders 107,300 LLC 107,300 9,000 Salary allowance Interest allowance Remaining income (4:33) Net income h. Prenare the inurnal entries to rince the 11 net income and withdrawals to the naatinua Mas

Answer 1

Answer :-

a)Determine the division of income among the three members.

Schedule of Division of Income
	WLKT partners	Madison Sanders	Observer Newspaper,LLC	Total
Salary Allowance		$ 107,300		$107,300
Interest Allowance (Note -1)	$ 33,000	$ 8,100	$ 19,800	$ 60,900
Remaining Income (4:3:3) (Note -2)	$76,720	$57,540	$57,540	$191,800
Net Income	$109,720	$172,940	$77,340	$360,000

Note 1 :-

Interest Allowance = Equity Capital Balance × Interest on each member Capital Balance

Interest on each member Capital Balance- 18%

WLKT partner Interest allowance = $ 185,000 × 18% = $ 33,000

Madison Sanders Interest allowance= $ 45,000 × 18% = $ 8,100

Observer Newspaper Interest Allowance = $ 110,000 × 18% = $19,800

Note 2 :-

Remaining Income = Net Income - Salary allowance - Interest Allowance

Remaining Income = $360,000 - $107,300 - $60,900

Remaining Income = $191,800

Thus the remaining Income is divided in the ratio of 4:3:3

b) Prepare the journal entry to close the net income and withdrawals to the individual member equity accounts.

1) To close Net Income

Particular	Debit	Credit
Revenue Dr.	$577,603
To Expense		$ 217,603
To WLKT partner member Equity		$109,720
To Madison Sanders member Equity		$ 172,940
To Observer Newspaper member Equity		$77,340

2) To close withdrawal to the individual members Equity -

Particular	Debit	Credit
WLKT partner member Equity	$33,000
Madison Sanders member Equity	$115,400
Observer Newspaper member Equity	$19,800
To WLKT partner, drawing		$33,000
To Madison Sanders,drawing		$115,400
To Observer Newspaper,drawing		$19,800

Drawing = Salary allowance + Interest Allowance

Only Madison Sanders have Salary allowance.

3)A statement of members’ equity :-

Marvel Media, LLC Statement of Members' Equity For the Year Ended December 31, 20Y2
	WLKT Partner	Madison Sanders	Observer Newspaper,LLC	Total
Balances, January 1, 20Y2	$185,000	$45,000	$110,000	$340,000
Capital additions	$50,000			$50,000
Total	$235,000	$45,000	$110,000	$390,000
Net income for the year	$109,720	$172,940	$77,340	$360,000
Total	$344,720	$217,940	$187,340	$750,000
Member withdrawals (less)	$33,000	$115,400	$19,800	$168,200
Balances, December 31, 20Y2	$311,720	$102,540	$167,540	$581,800

4)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.