Question

Canyon Canoe Company is a service-based company that rents canoes for use on local lakes and rivers. Amber and Zack Wilson graduated from college about 10 years ago. They both worked for one of the “Big Four” accounting firms and became CPAs. Because they both love the outdoors, they decided to begin a new business that will combine their love of outdoor activities with their business knowledge. Amber and Zack decide that they will create a new corporation, Canyon Canoe Company, or CCC for short. The business began operations on November 1, 2018. Nov. 1 Received \(16,000 cash to begin the company and issued common stock to Amber and Zack. 2 Signed a lease for a building and paid \)1,200 for the first month’s rent. 3 Purchased canoes for \(4,800 on account. 4 Purchased office supplies on account, \)750. 7 Earned \(1,400 cash for rental of canoes. 13 Paid \)1,500 cash for wages. 15 Paid \(50 dividends to stockholders. 16 Received a bill for \)150 for utilities. (Use separate payable account.) 20 Received a bill for \(175 for cell phone expenses. (Use separate payable account.) 22 Rented canoes to Early Start Daycare on account, \)3,000. 26 Paid \(1,000 on account related to the November 3, 2018, purchase. 28 Received \)750 from Early Start Daycare for canoe rental on November 22, 2018. 30 Paid $100 dividends to stockholders. Requirements 5. Calculate the return on assets for Canyon Canoe Company for November 2018

Short answer

Return on assets equals 12.44%.

Step-by-step solution

Explanation on return on assets

Return on assets is a tool which is used to measure the profitability generated by the business in percentage form, by utilizing the total assets of the.business

Calculation of return on assets

Return on assets is calculated as follows:

$\begin{array}{rcl}\mathrm{Return}\mathrm{on}\mathrm{Assets}& =& \frac{\mathrm{Net}\mathrm{Income}}{{\displaystyle \frac{\mathrm{Beginning}\mathrm{total}\mathrm{assets}+\mathrm{Ending}\mathrm{total}\mathrm{assets}}{2}}}\\ & =& \frac{\$1,375}{{\displaystyle \frac{\$0+\$22,100}{2}}}\\ & =& 12.44\%\end{array}$

Thus, ROA is 12.44%.