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 $207,400, $43,000, and $165,200, respectively. WLKT Partners contributed an additional $49,800 to Marvel Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $50,700 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 $1,186,500, 858,700 and $327,800 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 Amounts equal to the salary and interest allowances were withdrawn by the members.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

a)
		WLKT Partners	Madison sanders	Observer Newspaper LLC	Total
	Salary allowance		$ 50,700		$ 50,700
	Interest Allowance	$ 20,740	$ 4,300	$ 16,520	$ 41,560
		{$ 207,400 *10 %}	{$ 43,000 *10 %}	{$ 165,200 *10 %}
	Remaining income (4:3:3 )	$ 94,216	$ 70,662	$ 70,662	$ 235,540
		{$235,540 *4/10 }	{$235,540 *3/10 }	{$235,540 *3/10 }
	Net income	$ 114,956	$ 125,662	$ 87,182	$ 327,800
	Explanation :
	Remaining income = net income - (interest allowance+Salary allowance )
	Remaining income = $ 327,800 - ($ 50,700 +$ 41,560 )
	Remaining income = $ 235,540

b)
	Date	General journal	Debit	Credit
	Dec 31,20Y2	Income summary	$ 327,800
		WLKT Partners , Member Equity		$ 114,956
		Madison sanders ,Member Equity		$ 125,662
		Observer Newspaper LLC ,Member Equity		$ 87,182
		(To record Net income Transfer to the Member's Equity )
	Dec 31,20Y2	WLKT Partners , Member Equity	$ 20,740
		Madison sanders ,Member Equity(50,700+4300)	$ 55,000
		Observer Newspaper LLC ,Member Equity	$ 16,520
		WLKT Partners , Drawing		$ 20,740
		Madison sanders ,Drawing		$ 55,000
		Observer Newspaper LLC ,Drawing		$ 16,520
		(To record Drawings transfer to Member's equity)

C)

	MARVEL MEDIA , LLC
	Statement of member's Equity
	For the year year ended December 31,20Y2
	WLKT Partners	Madison sanders	Observer Newspaper LLC	Total
Member's equity, Jan1 20Y2	$ 207,400	$ 43,000	$ 165,200	$ 415,600
Additional investment during the year	$ 49,800			$ 49,800
	$ 257,200	$ 43,000	$ 165,200	$ 465,400
Net income for the year	$ 114,956	$ 125,662	$ 87,182	$ 327,800
	$ 372,156	$ 168,662	$ 252,382	$ 793,200
Withdrawals during the year	($20,740 )	($55,000)	($16,520)	( $92,260)
Member's equity, Dec 31, 20Y2	$ 351,416	$ 113,662	$ 235,862	$ 700,940

D)	An Income sharing agreement provides Flexibility and fairness. Without an Income sharing agreement , Each Member
	having equal proportion of the total earnings.However, the members provide different capital and effort to the LLC ,
	Here, WLKT is higher contribution ( $ 207,400 ). While Madison sanders also providing ongoing effort and expertise.
	So,these separate contribution will acknowledged in income sharing formula. Hence, agreement credits member
	equity for both interest on capital and salary allowance for Madison sanders. Any remaining income is to be credited
	to capital as per agreement that is ( 4 : 3 : 3 ).