[Anonymous]

Hello All

This question has been ragging my brain all day/night as I try to help a friend prep for FAR, and I can’t find any sound guidance/answers on the web. Any all and all help is appreciated 🙂

Facts: There is a LLC that is formed with 2 owners in the partnership agreement. Owner A has 45% Ownership and contributed no cash/services upon formation. Owner B has 55% ownership and contributes no cash/services upon formation.

During FYX1, Owner A contributes services billed to the client totaling 1000 hours @ $100/hr for the year, but does not distribute any of the earnings until FYX2. In FYX2, Owner A pays receives a distribution of 50,000.

Owner B contributes no services or cash during the year and is not paid out any of the company earnings.

Question:

In FYX1, what is the entry to record the services provided to the client but not paid out assuming that Owner A’s normal hourly rate is 80/hr.

In FYX2, what is the entry to record the disbursement of $50,000?

Answer 1:

DR: A/R 100,000

CR: Revenue 100,000

DR: Cash 100,000

CR: Revenue 100,000

DR: Expense 80,000

CR: Owner B Equity 80,000

Answer 2:

DR: Owner A Equity: 50,000

CR: Cash 50,000

Does this make sense? I am torn between using the billable rate and the typical cost rate.

Any and all help is appreciated!