Douglas Smith is opening a tax preparation service on December 1, which will be called Smith’s Tax Service. Douglas plans to open the business by depositing $50,000 cash into a business checking account. The following assets will also be owned by the business: furniture (fair market value of $10,000) and computers and printers (fair market value of $12,000). There are no outstanding debts of the business as it is formed.
Prepare a balance sheet for December 1, 2016, for Smith’s Tax Service by entering the correct balances in the appropriate accounts. (You will need to use the accounting equation to compute owner’s equity.)
Analyze: If Smith’s Tax Service had an outstanding debt of $16,000 when the business was formed, what amount should be reported on the balance sheet for owner’s equity?