Martin Farley and Ashley Clark formed a limited liability company with an operating agreement that provided a salary allowance of $58,000 and $46,000 to each member, respectively. In addition, the operating agreement specified an income-sharing ratio of 3:5. 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. a. Determine the division of $148,000 net income for the year. Schedule of Division of Net Income Farley Clark Total Salary allowance $ 58,000 $ 46,000 $ 104,000 Remaining income 16,500 27,500 44,000 Net income $ 74,500 $ 73,500 $ 148,000 b. Provide journal entries to close the (1) revenues and expenses and (2) drawing accounts for the two members. For a compound transaction, if an amount box does not require an entry, leave it blank. (1) (2) 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

a.

Farley = $74,500

Clark = $73,500

b.1.

Dr Revenues 668,000

    Cr Income summary 668,000

Dr Income summary 520,000

    Cr Expenses 520,000

b.2.

Dr Income summary 58,000

    Cr Martin Farley, drawing 58,000

Dr Income summary 16,500

    Cr Martin Farley, capital 16,500

Dr Income summary 46,000

    Cr Ashley Clark, drawings 46,000

Dr Income summary 27,500

    Cr Ashley Clark, capital 27,500

c.

they would have to divide proportionally based on their salary allowances:

Martin Farley = $58,000 / $104,000 = 55.77%      

Ashley Clark = $46,000 / $104,000 = 44.23%

Explanation:

                                                        Martin Farley        Ashley Clark

salary allowance                              $58,000               $46,000

income sharing ratio                              3                            5

withdrawals                                      $58,000               $46,000

revenues          $668,000

expenses        ($520,000)

net income       $148,000

a. Determine the division of $148,000 net income for the year.

$148,000 net income - $58,000 - $46,000 = $44,000

$44,000:

Farley = $44,000 x 3/8 = $16,500

Clark = $44,000 x 5/8 = $27,500

net income:

Farley = $58,000 + $16,500 = $74,500

Clark = $46,000 + $27,500 = $73,500

Dr Revenues 668,000

    Cr Income summary 668,000

Dr Income summary 520,000

    Cr Expenses 520,000

Dr Income summary 58,000

    Cr Martin Farley, drawing 58,000

Dr Income summary 16,500

    Cr Martin Farley, capital 16,500

Dr Income summary 46,000

    Cr Ashley Clark, drawings 46,000

Dr Income summary 27,500

    Cr Ashley Clark, capital 27,500

answer(b) gdp is not affected by

scott's production of the jewelry box;