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 $310,000, $80,000, and $185,000, respectively. WLKT Partners contributed an additional $80,000 to Marvel, Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $179,800 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 $1,017,799, $487,799 and $530,000 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 Amounts equal to the salary and interest allowances were withdrawn by the members.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)
(2)

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

	Marvel Inc. LLC
a.	Schedule of Division of Income
	As on December 31, 20Y2
S.No	Particulars	WLKT Partners Amount $	Madison Sanders Amount $	Observer Newspaper LLC        Amount $	Total Amount $
1	Salary Allowance		1,79,800		1,79,800
2	Interest Allowance @ 15% of Opening Cap Bal.	46,500	12,000	27,750	86,250
3	Remaining Income (4:3:3) - See Note 1	1,05,580	79,185	79,185	2,63,950
4	Net Income Answer	1,52,080	2,70,985	1,06,935	5,30,000
	Note 1: Calculation of Remaining Income	Amount $	Amount $
I	Net Income		5,30,000	Given in Question
Less:
a.	Salary Allowance to Madison	1,79,800		Given in Question
b.	Interest Allowance @ 15% of Opg. Capital Bal.	86,250		Given in Question
II	Total Deductions (a+b)		2,66,050
III	Remaining Income (to be shared in ration 4:3:3)		2,63,950

Qb.	Marvel LLC
	Journal Entries
	For the Year ended December 31, 20Y2
1	Account Head	Debit Amount $	Credit Amount $
	Revenue A/c	10,17,799
	Expenses A/c		4,87,799
	WLKT Partners Member Equity A/c		1,52,080
	Madison Sanders Member Equity A/c		2,70,985
	Observer Newspaper LLC Member Equity A/c		1,06,935
	(Being the journal entry to record the revenue, expenses and net income transferred to the Member Equity Account of the three Partners.)
2	Account Head	Debit Amount $	Credit Amount $
	WLKT Partners Member Equity A/c	46,500
	Madison Sanders Member Equity A/c	1,91,800
	Observer Newspaper LLC Member Equity A/c	27,750
	WLKT Partners Member Drawing A/c		46,500
	Madison Sanders Member Equity A/c		1,91,800
	Observer Newspaper LLC Member Equity A/c		27,750
	(Being the entry to record the salary and interest drawn by each partner. Refer Q(a) item 1 +2 for each Partner)

Q (c )	Marvel LLC
	Statement of Members Equity
	For the Year ended December 20Y2
S.No	Particulars	WLKT Partners Amount $	Madison Sanders Amount $	Observer Newspaper LLC        Amount $	Total Amount $
1	Balance as on January 1, 20Y2	3,10,000	80,000	1,85,000	5,75,000
2	Capital Additions	80,000			80,000
3	Balance after Capital Addition - June 1, 20Y2 (1+2)	3,90,000	80,000	1,85,000	6,55,000
4	Net Income for the year ( refer Table in Q (a)	1,52,080	2,70,985	1,06,935	5,30,000
5	Balance after Net Income distribution (3+4)	5,42,080	3,50,985	2,91,935	11,85,000
6	Less: Member Withdrawals (Refer Q (b) Journal Entry)	46,500	1,91,800	27,750	266,050
7	Balances as on December 20Y2 - Answer (5-6)	4,95,580	1,59,185	2,64,185	918,950
Q (d )
Answer	Without an income-sharing agreement, each member would  be credited with an equal proportion of the total earnings, or one-third each. Separate contributions could   be acknowledged in the income-sharing formula.