Refer to this chapter’s opening feature about Twitter. Assume that the owners decide to open a new Website devoted to micro-blogging for accountants and those studying accounting. This new company will be called AccounTwit.
1. AccounTwit obtains a $500,000 loan and the three owners contribute $250,000 in total from their own savings in exchange for common stock in the new company.
a. What is the new company’s total amount of liabilities plus equity?
b. What is the new company’s total amount of assets?
2. If the new company earns $80,250 in net income in the first year of operation, compute its return on assets (assume average assets equal $750,000). Assess its performance if competitors average a 10% return.