Refer to this chapter’s opening feature about Netflix. Assume that the owner decides to open a new company with an innovative mobile app devoted to microblogging for accountants and those learning accounting. This new company will be called AccountApp.

Required

1. AccountApp obtains a $500,000 loan, and the owner contributes $250,000 in total from his own savings in exchange for ownership of 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.