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Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $38,200 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. Revenues were $068,000 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 S148,000 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 exact wording of account bites. 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? Chart of Accounts ASSETS REVENUE 110 Cash 410 Revenues 111 Petty Cash 610 Interest Revenue 112 Accounts Receivable 113 Allowance for Doubtful Accounts EXPENSES 114 Interest Receivable 510 Cost of Merchandise Sold 115 Notes Receivable 520 Salaries Expense 116 Inventory 117 Office Supplies 118 Store Supplies 119 Prepaid Insurance 120 Land 521 Advertising Expense 522 Depreciation Expense-Equipment 523 Delivery Expense 524 Repairs Expense 529 Expenses 531 Rent Expense 533 Insurance Expense 534 Office Supplies Expense 535 Store Supplies Expense 536 Credit Card Expense 123 Equipment 124 Accumulated Depreciation-Equipment 129 Asset Revaluations 133 Patent 536 Credit Card Expense LIABILITIES 537 Cash Short and Over 210 Accounts Payable 538 Bad Debt Expense 211 Salaries Payable 539 Miscellaneous Expense 213 Sales Tax Payable 710 Interest Expense 214 Interest Payable 215 Notes Payable EQUITY 310 Martin Farley, Member Equity 311 Martin Farley, Drawing 312 Ashley Clark, Member Equity 313 Ashley Clark, Drawing A. Determine the division of S148,000 net income for the year. Clark Total Farley $60,825.00 X S Salary allowance Remaining income Net income Points: 019 Feedback Check My Work Set up a column for each partner and a total column. Allocate salary allowances, then distribute the remaining income based on the income sharing agreement. Question not attempted. JOURNAL DATE POST REF DET CREDIT ACCOLT ASSETS LLA DESCRIPTION Closing Entries Final Question Shaded ceils avec 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 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 Points: 013

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