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Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem

LLC net income and statement of members’ equity

Marvel Media, LLC, has three members: WLKT Partners, Madison Sanders, and Observer Newspaper, LLC. On January 1, 20Y2, the three members had equity of $200,000, $40,000, and $160,000, respectively. WLKT Partners contributed an additional $50,000 to Marvel Media, LLC, on June 1, 20Y2. Madison Sanders received an annual salary allowance of $55,000 during 20Y2. The members’ equity accounts are also credited with 10% interest on each member’s January 1 capital balance. Any remaining income is to be shared in the ratio of 4:3:3 among the three members. The revenues, expenses, and net income for Marvel Media, LLC, for 20Y2 were $1,260,000, $900,000, and $360,000, respectively. Amounts equal to the salary and interest allowances were withdrawn by the members.

  1. a. Determine the division of income among the three members.
  2. b. Prepare the journal entry to close the revenues, expenses, and withdrawals to the individual member equity accounts.
  3. c. Prepare a statement of members’ equity for 20Y2.
  4. d. What are the advantages of an income-sharing agreement for the members of this LLC?

a.

To determine

Determine the division of income among the three members.

Explanation

Partnership: It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

Working Note:

Interest Allowance @10% (1)

W’s share=($200,000×10100) =$20,000

M’s share=($40,000 <

b.

To determine

Provide the journal entries to close the revenues, expenses and withdrawals.

c.

To determine

Prepare a statement of members’ equity for 20Y2.

d.

To determine

Explain the advantages of having an income sharing agreement for the members of LLC.

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