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Dividing LLC Income Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $55,000 and

Dividing LLC Income

Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $55,000 and $44,000 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.

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

FarleyClarkTotalSalary allowance$fill in the blank 2df863ffb010fef_1$fill in the blank 2df863ffb010fef_2$fill in the blank 2df863ffb010fef_3Remaining incomefill in the blank 2df863ffb010fef_4fill in the blank 2df863ffb010fef_5fill in the blank 2df863ffb010fef_6Net income$fill in the blank 2df863ffb010fef_7$fill in the blank 2df863ffb010fef_8$fill in the blank 2df863ffb010fef_9

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

(1)Ashley Clark, DrawingAshley Clark, Member EquityMartin Farley, DrawingMartin Farley, Member EquityRevenuesRevenuesRevenuesRevenuesAshley Clark, DrawingCashExpensesMartin Farley, DrawingRevenuesExpensesExpensesExpensesAshley Clark, DrawingCashMartin Farley, DrawingMartin Farley, Member EquityRevenues- Select -- Select -Ashley Clark, DrawingAshley Clark, Member EquityMartin Farley, DrawingRevenuesSalary Expense- Select -- Select -(2)Ashley Clark, DrawingCashMartin Farley, DrawingMartin Farley, Member EquityRevenues- Select -- Select -Ashley Clark, DrawingAshley Clark, Member EquityMartin Farley, DrawingRevenuesSalary Expense- Select -- Select -Ashley Clark, Member EquityCashMartin Farley, DrawingMartin Farley, Member EquityRevenues- Select -- Select -Ashley Clark, DrawingAshley Clark, Member EquityMartin Farley, Member EquityRevenuesSalary Expense- Select -- Select -

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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,

bothneitherboth

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

an additiona deductiona deduction

, according to the

income-sharingownershipincome-sharing

ratio.

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