On January 1, 2015, White Water issues $200,000 of 7% bonds, due in 10 years, with interest payable semi-annually on June 30 and December 31 each year. The market interest rate on the issue date is 6% and the bonds issued at $214,877.

Required:
1. Using an amortization schedule, show that the bonds have a carrying value of $211,296 on December 31, 2014.
2. If the market interest rate increases to 8% on December 31, 2014, it will cost $189,437 to retire the bonds. Record the retirement of the bonds on December 31, 2014.