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 $213,200, $36,000, and $159,200, respectively. WLKT Partners contributed an additional $49,100 to Marvel Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $54,500 during 20Y2. The members’ equity accounts are also credited with 20% 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 $1,255,500, 872,400 and $383,100 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 Amounts equal to the salary and interest allowances were withdrawn by the members.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?

Chart of Accounts

CHART OF ACCOUNTS
Marvel Media, LLC
General Ledger
ASSETS 110 Cash 111 Petty Cash 112 Accounts Receivable 113 Allowance for Doubtful Accounts 114 Interest Receivable 115 Notes Receivable 116 Inventory 117 Office Supplies 118 Store Supplies 119 Prepaid Insurance 120 Land 123 Equipment 124 Accumulated Depreciation-Equipment 129 Asset Revaluations 133 Patent LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 310 Madison Sanders, Member Equity 311 Madison Sanders, Drawing 312 Observer Newspaper, LLC, Member Equity 313 Observer Newspaper, LLC, Drawing 314 WLKT Partners, Member Equity 315 WLKT Partners, Drawing	REVENUE 610 Revenues EXPENSES 510 Expenses 520 Salaries Expense 521 Advertising Expense 522 Depreciation Expense-Equipment 523 Delivery Expense 524 Repairs Expense 529 Selling Expenses 531 Rent Expense 533 Insurance Expense 534 Office Supplies Expense 535 Store Supplies Expense 536 Credit Card Expense 537 Cash Short and Over 538 Bad Debt Expense 539 Miscellaneous Expense 710 Interest Expense

Schedule of Division of Income

A. Determine the division of income among the three members.

Schedule of Division of Income

1		WLKT Partners	Madison Sanders	Observer Newspaper, LLC	Total
2	Salary allowance
3	Interest allowance
4	Remaining income (4:3:3)
5	Net income

Journal

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.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1		Closing Entries
2
3
4
5
6
7
8
9
10
11
12

Statement of Members’ Equity

C. Prepare a statement of members’ equity for 20Y2.

Marvel Media, LLC

Statement of Members’ Equity

For the Year Ended December 31, 20Y2

1		WLKT Partners	Madison Sanders	Observer Newspaper, LLC	Total
2	Balances, January 1, 20Y2
3	Capital additions
4
5	Net income for the year
6
7	Member withdrawals
8	Balances, December 31, 20Y2

Final Question

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.

	WLKT Partners	Madison Sanders	Observer Newspaper, LLC	Total
Salary allowance	0	54500	0	54500
Interest allowance (Jan 1 bal * 20%)	42640	7200	31840	81680
Remaining income (4:3:3)*[383100-(54500 + 81680)]	98768	74076	74076	246920
Net income	141408	135776	105916	383100

b.

Account	Debit	Credit
Revenues	1255500
Expenses		872400
WLKT Partners, Member Equity		141408
Madison Sanders, Member Equity		135776
Observer Newspaper, LLC, Member Equity		105916
To record closing entries for net income
WLKT Partners, Member Equity	42640
Madison Sanders, Member Equity (54500 + 7200)	61700
Observer Newspaper, LLC, Member Equity	31840
WLKT Partners, Drawing		42640
Madison Sanders, Drawing		61700
Observer Newspaper, LLC, Drawing		31840
To record closing entries for withdrawals

c.

	WLKT Partners	Madison Sanders	Observer Newspaper, LLC	Total
Balances, January 1, 20Y2	213200	36000	159200	408400
Capital additions	49100			49100
Net income for the year	141408	135776	105916	383100
Member withdrawals	-42640	-61700	-31840	-136180
Balances, December 31, 20Y2	361068	110076	233276	704420

d. 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