EX 2-12 Capital account balance

As of January 1, Terrace Waters, Capital had a credit balance of $500,000. During the year, withdrawals totaled $10,000, and the business incurred a net loss of $320,000.

a. Compute the balance of Terrace Waters, Capital as of the end of the year.

b.  Assuming that there have been no recording errors, will the balance sheet prepared at December 31 balance? Explain.


Answer:
a. Credit balance of $170,000 ($500,000 – $10,000 – $320,000).

b. Yes. The balance sheet prepared at December 31 will balance, with Terrace Waters, Capital, being reported in the owner’s equity section as $170,000.