Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $36,200 and $30,700 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. Note: The reduction in members equity from withdrawals would be disclosed on the statement of members equity.

Required:

A. Determine the division of $127,600 net income for the year.

B. On December 31, provide journal entries to close the (1) income summary and (2) drawing accounts for the two members. Refer to the Chart of Accounts for exact wording of account titles.

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, 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.]