The statement of members’ equity for Bonanza, LLC, is shown below.
Bonanza, LLC
Statement of Members’ Equity
For the Years Ended December 31, 2014 and 2015
Idaho
Properties,
LLC,
Member
Equity
Silver
Streams,
LLC,
Member
Equity
Thomas
Dunn,
Member
Equity
Total
Members’
Equity
Members’ equity, January 1, 2014 $273,000 $307,000 $ 580,000
Net income 57,000 133,000 190,000
Members’ equity, December 31, 2014 $330,000 $440,000 $ 770,000
Dunn contribution, January 1, 2015 3,000 7,000 $220,000 230,000
Net income 62,500 137,500 50,000 250,000
Less member withdrawals (32,000) (48,000) (40,000) (120,000)
Members’ equity, December 31, 2015 $363,500 $536,500 $230,000 $1,130,000
a. What was the income-sharing ratio in 2014?
b. What was the income-sharing ratio in 2015?
c. How much cash did Thomas Dunn contribute to Bonanza, LLC, for his interest?
d. Why do the member equity accounts of Idaho Properties, LLC, and Silver Streams, LLC, have positive entries for Thomas Dunn’s contribution?
e. What percentage interest of Bonanza did Thomas Dunn acquire?
f. Why are withdrawals less than net income?
Answer:
a. The income-sharing ratio is determined by dividing the net income
for each member by the total net income. Thus, in 2014, the incomesharing
ratio is as follows:
$57,000
Idaho Properties, LLC: = 30%
$190,000
$133,000
Silver Streams, LLC: = 70%
$190,000
Or a 3:7 ratio
b. Following the same procedure as in (a):
$62,500
Idaho Properties, LLC: = 25%
$250,000
$137,500
Silver Streams, LLC: = 55%
$250,000
$50,000
Thomas Dunn: = 20%
$250,000
c. Thomas Dunn provided a $230,000 cash contribution to the business.
The amount credited to his member equity account is this amount
less a $10,000 bonus paid to the other two members, or $220,000.
d. The positive entries to Idaho Properties and Silver Streams are the
result of a bonus paid by Thomas Dunn.
e. Thomas Dunn acquired a 22% interest in the business on January 1,
2015, computed as follows:
Thomas Dunn, member equity…………………………… $ 220,000
Idaho Properties, LLC, member equity………………… 333,000
Silver Streams, LLC, member equity…………………… 447,000
Total…………………………………………………………… $1,000,000
Thomas’ ownership interest after admission
($220,000 ÷ $1,000,000)………………………………… 22%
f. Withdrawals need not be the same as the income credited to the members’ equity accounts. Withdrawals will be less than the amounts credited when the members wish to retain capital in the business to support business growth or otherwise strengthen the business.
Bonanza, LLC
Statement of Members’ Equity
For the Years Ended December 31, 2014 and 2015
Idaho
Properties,
LLC,
Member
Equity
Silver
Streams,
LLC,
Member
Equity
Thomas
Dunn,
Member
Equity
Total
Members’
Equity
Members’ equity, January 1, 2014 $273,000 $307,000 $ 580,000
Net income 57,000 133,000 190,000
Members’ equity, December 31, 2014 $330,000 $440,000 $ 770,000
Dunn contribution, January 1, 2015 3,000 7,000 $220,000 230,000
Net income 62,500 137,500 50,000 250,000
Less member withdrawals (32,000) (48,000) (40,000) (120,000)
Members’ equity, December 31, 2015 $363,500 $536,500 $230,000 $1,130,000
a. What was the income-sharing ratio in 2014?
b. What was the income-sharing ratio in 2015?
c. How much cash did Thomas Dunn contribute to Bonanza, LLC, for his interest?
d. Why do the member equity accounts of Idaho Properties, LLC, and Silver Streams, LLC, have positive entries for Thomas Dunn’s contribution?
e. What percentage interest of Bonanza did Thomas Dunn acquire?
f. Why are withdrawals less than net income?
Answer:
a. The income-sharing ratio is determined by dividing the net income
for each member by the total net income. Thus, in 2014, the incomesharing
ratio is as follows:
$57,000
Idaho Properties, LLC: = 30%
$190,000
$133,000
Silver Streams, LLC: = 70%
$190,000
Or a 3:7 ratio
b. Following the same procedure as in (a):
$62,500
Idaho Properties, LLC: = 25%
$250,000
$137,500
Silver Streams, LLC: = 55%
$250,000
$50,000
Thomas Dunn: = 20%
$250,000
c. Thomas Dunn provided a $230,000 cash contribution to the business.
The amount credited to his member equity account is this amount
less a $10,000 bonus paid to the other two members, or $220,000.
d. The positive entries to Idaho Properties and Silver Streams are the
result of a bonus paid by Thomas Dunn.
e. Thomas Dunn acquired a 22% interest in the business on January 1,
2015, computed as follows:
Thomas Dunn, member equity…………………………… $ 220,000
Idaho Properties, LLC, member equity………………… 333,000
Silver Streams, LLC, member equity…………………… 447,000
Total…………………………………………………………… $1,000,000
Thomas’ ownership interest after admission
($220,000 ÷ $1,000,000)………………………………… 22%
f. Withdrawals need not be the same as the income credited to the members’ equity accounts. Withdrawals will be less than the amounts credited when the members wish to retain capital in the business to support business growth or otherwise strengthen the business.
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