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Beacon Products Inc. was authorized to issue $1,000,000 of bonds as follows:
|
Date of authorization |
Term |
Interest rate |
Interest payment dates |
|
January 1, 2015 |
3 years |
12% |
Semi-annually on June 30 and December 31 |
On January 1, 2015, Beacon issued $300,000 of bonds for $272,263. On this date, the market rate of interest was 16%.
Required:
- Calculate the amount of cash received from the bond issue on January 1, 2015.
- Prepare an amortization table. Use the effective interest method of amortization.
- Calculate the effective interest rate for each six-month period.
- Comment on the results in each period. Do you think the results are appropriate? Why or why not?
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