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 $240,000, $60,000, and $145,000, respectively. WLKT Partners contributed an additional $60,000 to Marvel, Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $139,200 during 20Y2. The members’ equity accounts are also credited with 12% 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 $909,661, $549,661 and $360,000 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 Amounts equal to the salary and interest allowances were withdrawn by the members.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.

WLKT MADIS OBS 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 (WOULD/WOULD NOT) be credited with an equal proportion of the total earnings, or one-third each. Separate contributions (CAN/CANNOT) be acknowledged in the income-sharing formula.

Answer 1

a.
		WLKT Partners	Madison Sanders	Observer Newspaper, LLC	Total
	Salary allowance		$139,200		$139,200
	Interest allowance	28,800	7,200	17,400	53,400
	Remaining income (4:3:3)	66,960	50,220	50,220	167,400
	Net Income	$        95,760	$      196,620	$      67,620	$      360,000
	1 12% x $240,000 = 28800
	2 12% x $60,000 = 7200
	3 12% x $145,000 = 17400
b.
Dec 31, 20Y2	Income Summary	360,000
	WLKT Partners, Member Equity		95,760
	Madison Sanders, Member Equity		196,620
	Observer Newspaper, LLC, Member Equity		67,620
Dec 31, 20Y2	WLKT Partners, Member Equity	28,800
	Madison Sanders, Member Equity*	146,400
	Observer Newspaper, LLC, Member Equity	17,400
	WLKT Partners, Drawing		28,800
	Madison Sanders, Drawing		146,400
	Observer Newspaper, LLC, Drawing		17,400
* $139,200 + $7,200
c	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	$240,000	$60,000	$145,000	$445,000
	Capital additions	60,000			60,000
		$300,000	$60,000	$145,000	$505,000
	Net income for the year	95,760	196,620	67,620	360,000
		$395,760	$256,620	$212,620	865,000
	Member withdrawals	28,800	146,400	17,400	192,600
	Balances, December 31, 20Y2	$366,960	$110,220	$195,220	$672,400
d	Without an income-sharing agreement, each member (WOULD) be credited with an equal proportion of the total earnings, or one-third each. Separate contributions (CANNOT) be acknowledged in the income-sharing formula.