Answer:
Martin Farley and Ashley Aark, LLC
a. Division of net income for the year:
Martin Ashley Total
Income-sharing ratio 3 1 4
Net Income $149,600
Salary Allowance $41,400 $32,100 (73,500)
Income Sharing 57,075 19,025 (76,100)
Total Share $98,475 $51,125 $0
b. Journal Entries to close:
1) Income Summary:
Debit Net Income $149,600
Credit Drawing accounts:
Martin $98,475
Ashley $51,125
To close the income summary.
2) Drawing accounts for the two members:
Debit Equity accounts:
Martin $57,075
Ashley $19,025
Credit Drawing Accounts $76,100
To close the drawings accounts to equity.
c) If the net income were less than the sum of the salary allowances, the net loss after the salary allowances had been provided for would be shared between the two members to reduce their equities accordingly.
Explanation:
a) Data and Calculations:
Martin Ashley Total
Income-sharing ratio 3 1 4
Net Income $149,600
Salary Allowance $41,400 $32,100 (73,500)
Income Sharing 57,075 19,025 (76,100)
Total Share $98,475 $51,125 $0
b) Debit Drawings accounts:
Martin $41,400
Ashley $32,100
Credit Cash Account $73,500
To record the cash withdrawals.
