Question

Marvel Media, LLC, has three members: WLKT Partners, Madison Sanders, and Observer Newspaper, LLC. On January 1, 20Y2, the three members had equity of $165,000, $40,000, and $100,000, respectively. WLKT Partners contributed an additional $40,000 to Marvel, Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $95,700 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 $512,091, $232,091 and $280,000 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 Amounts equal to the salary and interest allowances were withdrawn by the members.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)	Revenues
	Expenses
	WLKT Partners, Member Equity
	Madison Sanders, Member Equity
	Observer Newspaper, LLC, Member Equity
(2)	WLKT Partners, Member Equity
	Madison Sanders, Member Equity
	Observer Newspaper, LLC, Member Equity
	WLKT Partners, Drawing
	Madison Sanders, Drawing
	Observer Newspaper, LLC, Drawing

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. Division of income among the three members
Schedule of Division of Income
	WLKT Partners	Madison Sanders	Observer Newspaper, LLC	Total
Salary allowance	0	95700	0	95700
Interest allowance(Jan 1 bal*15%)	24750	6000	15000	45750
Remaining income (4:3:3)*(280000-(95700+45750))	55420	41565	41565	138550
Net income	80170	143265	56565	280000

	b. Journal entries to close the (1) net income and (2) withdrawals to the individual member equity accounts.
-1	Revenues	512091
	Expenses		232091
	WLKT Partners, Member Equity		80170
	Madison Sanders, Member Equity		143265
	Observer Newspaper, LLC, Member Equity		56565
-2	WLKT Partners, Member Equity	24750
	Madison Sanders, Member Equity(95700+6000)	101700
	Observer Newspaper, LLC, Member Equity	15000
	WLKT Partners, Drawing		24750
	Madison Sanders, Drawing		101700
	Observer Newspaper, LLC, Drawing		15000

c. Statement of members' equity for 20Y2.
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	165000	40000	100000	305000
Capital additions	40000			40000
Net income for the year	80170	143265	56565	280000
Member withdrawals	-24750	-101700	-15000	-141450
Balances, December 31, 20Y2	260420	81565	141565	483550

d .Advantages of an income-sharing agreement for the members of this LLC

Without an income-sharing agreement, each member WILL be credited with an equal proportion of the total earnings, or one-third each. Separate contributions CAN be acknowledged in the income-sharing formula.