Dividing LLC Income Martin Farley and Ashley Clark formed a

Dividing LLC Income

Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $56,000 and $45,000 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:2. 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.

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.

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.

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

Solution

(a) Schedule of Division of Net Income Farley Clark Total Salary allowance $                 56,000 $      45,000 $      101,000 Remaining income (0.6/0.4)                     28,200          18,800            47,000 Net income $                 84,200 $      63,800 $      148,000 (b) (1) Revenues $        668,000 Expenses $           520,000 Farley\'s Capital $             84,200 Clark\'s Capital $             63,800 (2) Farley\'s Capital $          56,000 Clark\'s Capital $          45,000 Cash $           101,000 (c ) 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         agreed            , according to the              income                ratio.