Refer to this chapter’s opening feature about Apple. Assume that the owners decide to open a new company with an innovative mobile app devoted to micro blogging for accountants and those learning accounting. This new company will be called Account App.

Required

1. Account App obtains a $500,000 loan and the two 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.