Response to the following problem:
Beacon Products Inc. was authorized to issue $1,000,000 of bonds as follows:
Date of authorization January 1, 2015
Term 3 years
Interest rate 12%
Interest payment dates 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:
1. Calculate the amount of cash received from the bond issue on January 1, 2015.
2. Prepare an amortization table. Use the effective interest method of amortization.
3. Calculate the effective interest rate for each six-month period.
4. Comment on the results in each period. Do you think the results are appropriate? Why or why not?