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Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $36,500 and $30,300 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:1. 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.

Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $36,500 and $30,300 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:1. 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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Instructions Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $36,500 and $30,300 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:1. 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. Note: The reduction in members' equity from withdrawals would be disclosed on the statement of members' equity. a. Determine the division of $148,000 net income for the year. b. On December 31, provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. c. If the net income was less than the sum of the salary allowances, how would income be divided between the two members of the LLC? First Question a. Determine the division of $148,000 net income for the year. Salary allowance $ Remaining income Net income $ Farley $ $ Clark $ $ Total General Journal b. On December 31, provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. General Journal Instructions Final Question c. If the net income was 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 was less than the sum of the salary allowances, both members would still be with their salary allowances. From this amount, each partner would his or her share of the excess of the total salary allowance over the net income. Thus, the difference between the net income and total salary allowances would be allocated to each partner as a according to the income- sharing ratio.
Transcribed Image Text:Instructions Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $36,500 and $30,300 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:1. 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. Note: The reduction in members' equity from withdrawals would be disclosed on the statement of members' equity. a. Determine the division of $148,000 net income for the year. b. On December 31, provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. c. If the net income was less than the sum of the salary allowances, how would income be divided between the two members of the LLC? First Question a. Determine the division of $148,000 net income for the year. Salary allowance $ Remaining income Net income $ Farley $ $ Clark $ $ Total General Journal b. On December 31, provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. General Journal Instructions Final Question c. If the net income was 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 was less than the sum of the salary allowances, both members would still be with their salary allowances. From this amount, each partner would his or her share of the excess of the total salary allowance over the net income. Thus, the difference between the net income and total salary allowances would be allocated to each partner as a according to the income- sharing ratio.
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