Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $40,000 and $30,000 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. Note: The reduction in members’ equity from withdrawals would be disclosed on the statement of members’ equity. Required: a. Determine the division of $148,000 net income for the year. b. On December 31, provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered. 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?
Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $40,000 and $30,000 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. Note: The reduction in members’ equity from withdrawals would be disclosed on the statement of members’ equity. Required: a. Determine the division of $148,000 net income for the year. b. On December 31, provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered. 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?
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter14: Partnerships And Limited Liability Entities
Section: Chapter Questions
Problem 14P
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Question
Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $40,000 and $30,000 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.
Note: The reduction in members’ equity from withdrawals would be disclosed on the statement of members’ equity.
Required:
| a. | Determine the division of $148,000 net income for the year. |
| b. | On December 31, provide |
| 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? |
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