On January 1, 2008, Holmes Co. borrowed cash from First City Bank by issuing an $80,000 face value, three-year term note that had a 7 percent annual interest rate. The note is to be repaid by making annual payments of $30,484 that include both interest and principal on December 31. Holmes invested the proceeds from the loan in land that generated lease revenues of $40,000 cash per year.

Required

a. Prepare an amortization schedule for the three-year period.

b. Organize the information in accounts under an accounting equation.

c. Prepare an income statement, balance sheet, and statement of cash flows for each of the three years.

d. Does cash outflow from operating activities remain constant or change each year? Explain.