EX 12-14 Admitting a new LLC member with bonus

Alert Medical, LLC, consists of two doctors, Abrams and Lipscomb, who share in all income and losses according to a 2:3 income-sharing ratio. Dr. Lin has been asked to join the LLC. Prior to admitting Lin, the assets of Alert Medical were revalued to reflect their current market values. The revaluation resulted in medical equipment being increased by $40,000. Prior to the revaluation, the equity balances for Abrams and Lipscomb were $154,000 and $208,000, respectively.

a. Provide the journal entry for the asset revaluation.
b. Provide the journal entry for the bonus under the following independent situations:

1. Lin purchased a 30% interest in Alert Medical, LLC, for $228,000.
2. Lin purchased a 25% interest in Alert Medical, LLC, for $124,000.


Answer:

a. Medical Equipment 40,000
Abrams, Member Equity* 16,000
Lipscomb, Member Equity** 24,000
* $40,000 × 2/5 = $16,000
** $40,000 × 3/5 = $24,000
b. (1) Cash 228,000
Abrams, Member Equity* 15,600
Lipscomb, Member Equity** 23,400
Lin, Member Equity 189,000
* $39,000 × 2/5 = $15,600
** $39,000 × 3/5 = $23,400
Supporting calculations for the bonus:
Abrams, member equity ($154,000 + $16,000)…… $170,000
Lipscomb, member equity ($208,000 + $24,000)… 232,000
Contribution by Lin…………………………………… 228,000
Total equity after admitting Lin……………………… $630,000
Lin’s equity interest after admission…………… × 30%
Lin, member equity…………………………………… $189,000
Contribution by Lin…………………………………… $228,000
Lin’s equity interest after admission……………… 189,000
Bonus paid to Abrams and Lipscomb…………… $ 39,000
(2) Cash 124,000
Abrams, Member Equity* 3,000
Lipscomb, Member Equity** 4,500
Lin, Member Equity 131,500

* $7,500 × 2/5 = $3,000
** $7,500 × 3/5 = $4,500
Supporting calculations for the bonus:
Abrams, member equity…………………………… $170,000
Lipscomb, member equity…………………………… 232,000
Contribution by Lin…………………………………… 124,000
Total equity after admitting Lin…………………… $526,000
Lin’s equity interest after admission…………… × 25%
Lin, member equity…………………………………… $131,500
Contribution by Lin…………………………………… 124,000
Bonus paid to Lin…………………………………… $ 7,500