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.

Chart of Accounts Copied and Pasted Below

CHART OF ACCOUNTS

Farley and Clark

General Ledger

	ASSETS
110	Cash
111	Petty Cash
112	Accounts Receivable
113	Allowance for Doubtful Accounts
114	Interest Receivable
115	Notes Receivable
116	Inventory
117	Office Supplies
118	Store Supplies
119	Prepaid Insurance
120	Land
123	Equipment
124	Accumulated Depreciation-Equipment
129	Asset Revaluations
133	Patent

	LIABILITIES
210	Accounts Payable
211	Salaries Payable
213	Sales Tax Payable
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

	REVENUE
410	Revenues
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
520	Salaries Expense
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
537	Cash Short and Over
538	Bad Debt Expense
539	Miscellaneous Expense
710	Interest Expense

Answer 1

As in question nothing is specified we have calculated the division of salary allowance and income distribution to both the partners:-

As per IRS, partner in LLC cannot receive any salary except the share of income. However, they can receive guaranteed payments for the services provided by them. So, any salary paid is merely the profir distribution.

So, profit distribution to them will be:-

Partners Name	Martin Farley	Ashley Clark
Salary Allowance	40,000	30,000
Profit distribution	46,800	31,200
Total Income	86,800	61,200

Also, the withdrawal by the partners will be reduced from the respective drwaing accounts. Journal entries for the same will be:-

Particulars	Debit	Credit
Martin Farley, Drawing Account	40,000
Ashley Clark, Drawing Account	30,000
Cash Account		70,000