Question

Dividing LLC Income

Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $57,000 and $46,000 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:5. The two members withdrew amounts equal to their salary allowances. Revenues were $668,000 and expenses were $520,000, for a net income of $148,000.

a. Determine the division of $148,000 net income for the year.

Schedule of Division of Net Income
	Farley	Clark	Total
Salary allowance	$	$	$
Remaining income
Net income	$	$	$

b. Provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. For a compound transaction, if an amount box does not require an entry, leave it blank.

(1)
(2)

c. If the net income were less than the sum of the salary allowances, how would income be divided between the two members of the LLC?

If the net income of the LLC were less than the sum of the salary allowances, members would still be credited with their salary allowances. The difference between the net income and total salary allowances would be allocated to each partner as , according to the ratio.

Answer 1

a)
Schedule of division of net income
	Farley	Clark	Total
Salary Allowance	57,000	46,000	103,000
Reminder income -3:5	16,875	28,125	45,000	(45000/8*3 and 5 )
Net Income	73,875	74,125	148,000

b) Ans:-
Journal Entries
Revenues	$ 668,000.00
Expenses		$ 520,000.00
Martin Farley, Capital		$    73,875.00
Ashley Clark, Capital		$    74,125.00
(To close the revenue and expenses account)
Martin Farley, Capital	$    57,000.00
Ashley Clark, Capital	$    46,000.00
Martin Farley, Drawing		$    57,000.00
Ashley Clark, Drawing		$    46,000.00
(To close withdrawls)