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snow_tiger [21]
3 years ago
11

The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project, LHD issued 5%

bonds with a face amount of $530,000 on November 1, 2018. The bonds sold for $468,748, a price to yield the market rate of 6%. The bonds mature October 31, 2038 (20 years). Interest is paid semiannually on April 30 and October 31 and is determined using the effective interest method.
Required:
1. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2018?
2. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2018?
3. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2019?
4. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2019?

Business
1 answer:
algol [13]3 years ago
3 0

Answer

The answer and procedures of the exercise are attached in the following images.  

Explanation  

Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a two sheets with the formulas indications.  

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a) Baker's profit margin = 7.5%

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a) Assets Turnover = \frac{Net Sales}{Average Total Assets} = 1.6 times

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Then we have profit margin on sales = \frac{Return on total assets}{Asset turnover ratio} = \frac{12}{1.6} = 7.5%

b) In case asset turnover declined to 2 times with profit margin of 6% then Return on total assets = Asset turnover ratio X Profit Margin

= 2 X 6% = 12%

Thus there is no change in that case on return on total investments.

a) Baker's profit margin = 7.5%

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