Answer and Explanation:
The computation is shown below:
a. The determination of the division net income for the year is shown below:
Particulars Martin Farley Ashley Clark Total
Salary allowance $59,000 $47,000 $106,000
Remaining income $31,500 $10,500 $42,000
Net income $90,500 $57,500 $148,000
The remaining income is come from
= $148,000 - $106,000
= $42,000
And the $42,000 is distributed in 3:1 sharing ratio
b. The closing entries are as follows
1. Income Summary $148,000
Martin Farley Capital $90,500
Ashley Clark Capital $57,500
(Being the capital is closed)
Revenue $668,000
Income Summary $668,000
(Being the revenue account is closed)
Income Summary $520,000
Expenses $520,000
(Being the expense account is closed)
2. Martin Farley Capital $59,000
Ashley Clark Capital $49,000
Martin Farley withdrawals $59,000
Ashley Clark withdrawals $49,000
(Being the closing of withdrawals account is recorded)
c. If the LLC's net income is less than the amount of the salary allowances, all members will still have their salary allowances paid. Each partner will subtract its share of the excess of the overall salary allowance over net income . Therefore, according to the profit-sharing ratio, the difference between the net benefit and the total salary allowances will be distributed to each partner as a deduction.