Question

5/29/2019 CengageNOWV2 Online teaching and learning resource from Cengage Leaming Dividing LLC Income Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of S60,000 and $48,000 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 Farl Clark Total Salary allowanoe 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. 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 asa ratio , according to the 2 more Check My Work uscs remaining. https:iN2.cengagenow.com/ilrnMakeAssignmenttakeAssignmentMain.do?invoker-assignmentsstakeAssignmentSessionLocator-assignment-lake&in 1/1

Answer 1

	Data Available
		Martin	Farley	Total
1	Designation in LLC	Partner	Partner
2	Salary	60,000	48,000	108,000
3	Income sharing	3	2	5
4	Revenues			668,000
5	Expenses			520,000
6	Net income			148,000
	Answer
a	Division of net income during the year
		Martin	Farley	Total
	Net Income			148,000
	Salary to partners	60,000	48,000	108,000
	Balance profit in the ratio of 3 : 2	24,000	16,000	40,000
b	Journal entries
i	Profit & Loss	Debit	520,000
	Expenses	Credit	520,000
	Being expenses transferred to Profit & Loss account
ii	Revenues	Debit	668,000
	Profit & Loss	Credit	668,000
	Being revenues transferred to Profit & Loss account
iii	Salary to partners	Debit	108,000
	Martins Capital	Credit	60,000
	Farley Capital	Credit	48,000
	Being partners salary credited to partners capital account
iv	Profit share	Debit	40,000
	Martins Capital	Credit	24,000
	Farley Capital	Credit	16,000
	Being partners share credited to partners capital account

c	If the net income were less than the sum of salaries of both the partners, then the income would be divided in the income sharing ratio in the absence of specific clause in the deed or contract decided among the partners.