Whiley Company issued a $100,000, five-year, 10 percent note to Security Company on January 2, 2005. Interest was to be paid annually each December...

Whiley Company issued a $100,000, five-year, 10 percent note to Security Company on January 2, 2005. Interest was to be paid annually each December 31. The stated rate of interest reflected the market rate of interest on similar notes. Whiley made the first interest payment on December 31, 2005, but due to financial difficulties was unable to pay any interest on December 31, 2006. Security agreed to the following terms: