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 $200,000, $37,400, and $163,500, respectively. WLKT Partners contributed an additional $48,100 to Marvel Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $59,700 during 20Y2. The members’ equity accounts are also credited with 10% 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. members. The revenues, expenses, and net income for Marvel Media, LLC, for 20Y2 were $1,263,600, 891,900 and $371,700 respectively. Amounts equal to the salary and interest allowances were withdrawn by the members.

	Required:
A.	Determine the division of income among the three members.
B.	Prepare the journal entries to close the net income and withdrawals to the individual member equity accounts. Refer to the Chart of Accounts for exact wording of account titles.
C.	Prepare a statement of members’ equity for 20Y2.
D.	What are the advantages of an income-sharing agreement for the members of this LLC?

Answer 1

Solution A:

Schedule of Divison of income
Particulars	WLKT Partners	Madison Senders	Observer Newspaper LLC	Total
Salary Allowance		$59,700.00		$59,700.00
Interest Allowance WLKT - ($200000*10%) Madison - ($37,400*10%) Observer - ($163,500*10%)	$20,000.00	$3,740.00	$16,350.00	$40,090.00
Remaining Income ($371,700 - $59,700 - $40,090 = $271,910) WLKT ($271,910*4/10) Madison ($271,910*3/10) Observer ($271,910*3/10)	$108,764.00	$81,573.00	$81,573.00	$271,910.00
Net Income	$128,764.00	$145,013.00	$97,923.00	$371,700.00

Solution B:

Journal Entries - Marvel Media LLC
Particulars	Debit	Credit
Divison of net income:
Income Summary Dr	$371,700.00
To WLKT Partners Capital's A/c		$128,764.00
To Madison Senders Capital's A/c		$145,013.00
To Observer Newspaper LLC Capital's A/c		$97,923.00
(Being Net income distributed among partners)
Withdrawl of Individual Member 's Equity:
WLKT Partners Capital's A/c Dr	$20,000.00
Madison Senders Capital's A/c Dr	$63,440.00
Observer Newspaper LLC Capital's A/c Dr	$16,350.00
To Cash A/c		$99,790.00
(Being salary and interest withdrawn by partners)

Solution C:

Marvel Medial LLC
Statement of Member's Equity
For year ended December 31' 20Y2
Particulars	WLKT Partners	Madison Senders	Observer Newspaper LLC	Total
Balances, Janauar 1, 20Y2	$200,000.00	$37,400.00	$163,500.00	$400,900.00
Add: Capital Additions	$48,100.00			$48,100.00
	$248,100.00	$37,400.00	$163,500.00	$449,000.00
Add: Net Income for the year	$128,764.00	$145,013.00	$97,923.00	$371,700.00
	$376,864.00	$182,413.00	$261,423.00	$820,700.00
Less: Member's Withdrawl	$20,000.00	$63,440.00	$16,350.00	$99,790.00
Balances, December'31 20Y2	$356,864.00	$118,973.00	$245,073.00	$720,910.00

Solution D:

Income sharing agreement provides flexibility. Without income sharing agreement income is dividend amount partners equally. However practically different amount of capital is contributed by partners in partnership and some partner give full time to business of partnership, on the other hand some partners are sleeping partners. Therefore income sharing agreement provides clarity regarding how income will be shared among partners and it reduces dispute between partners and business run for a long term as partners are aware about their roles and responsibilities.