Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $41,400 and $32,100 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.

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_______(credited/debited) with their salary allowances. From this amount, each partner would______ (add/deduct) 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_____(addition/deduction) , according to the income-sharing ratio.