Water Sports Company (WSC) patented and successfully test-marketed a new product. To expand its abil¬ ity to produce and market the new product, WSC needs to raise $800,000 of financing. On January 1, 2013, the company obtained the money in two ways:

a. WSC signed a $400,000, 10% installment note to be repaid with five equal annual installments to be made on December 31 of 2013 through 2017.

b. WSC issued five-year bonds with a par value of $400,000. The bonds have a 12% annual contract rate and pay interest on June 30 and December 31. The bonds’ annual market rate is 10% as of January 1, 2013.

Required 1. For the installment note,

(a) compute the size of each annual payment, ((?) prepare an amortization table such as Exhibit 14.14, and

(c) prepare the journal entry for the first payment.

2. For the bonds,

(a) compute their-issue price;

(b) prepare the January 1, 2013, journal entry to record their issuance;

(c) prepare an amortization table using the straight-line method;

(d) prepare the June 30, 2013, journal entry to record the first interest payment; and

(e) prepare a journal entry to record retiring the bonds at a $416,000 call price on January 1, 2015.

3. Redo parts 2(c), 2{d), and 2

(c) assuming the bonds are amortized using the effective interest method.