Refer to this chapter’s opening feature about Facebook. Assume that Mark Zuckerberg decides to open a new Website devoted to social networking for accountants and those studying accounting. This new company will be called Account Book.
1. Account Book obtains a $500,000 loan and Mark Zuckerberg contributes $250,000 of his own assets 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 $80,000 in net income in the first year of operation, compute its return on asset (assume average assets equal $750,000). Assess its performance if competitors average a 10% return.