Question

Martin Farley and Ashley aark formed a ed liability company with an agreement that provided a salary allowance of $41,400 and operating specified an income-sharing ratio of 3:1. $32,100 to each member, respectively. In addition, the operating agreement The two members withdrew amounts equal to their salary allowances. Note: The reduction in members equity from withdrawals would be disclosed on the statement of members' equity.

Required:
a. Determine the division of s149,600 net income for the year.
b. On December 31, provide journal entries to close the (1)income summary and (2)drawing accounts for the two members.
c. If the net income were less than the sum of the salary alowances, how would income be dvided between the two members the LLC

Answer 1

Martin Farley and Ashley Aark, LLC

a. Division of net income for the year:

Martin Ashley Total

Income-sharing ratio 3 1 4

Net Income $149,600

Salary Allowance $41,400 $32,100 (73,500)

Income Sharing 57,075 19,025 (76,100)

Total Share $98,475 $51,125 $0

b. Journal Entries to close:

1) Income Summary:

Debit Net Income $149,600

Credit Drawing accounts:

Martin $98,475

Ashley $51,125

To close the income summary.

2) Drawing accounts for the two members:

Debit Equity accounts:

Martin $57,075

Ashley $19,025

Credit Drawing Accounts $76,100

To close the drawings accounts to equity.

c) If the net income were less than the sum of the salary allowances, the net loss after the salary allowances had been provided for would be shared between the two members to reduce their equities accordingly.

Step-by-step explanation:

a) Data and Calculations:

Martin Ashley Total

Income-sharing ratio 3 1 4

Net Income $149,600

Salary Allowance $41,400 $32,100 (73,500)

Income Sharing 57,075 19,025 (76,100)

Total Share $98,475 $51,125 $0

b) Debit Drawings accounts:

Martin $41,400

Ashley $32,100

Credit Cash Account $73,500

To record the cash withdrawals.