Effect of an installment note on financial statements
On January 1, 2012, Sneed Co. borrowed cash from Best Bank by issuing a $100,000 face value, four-year term note that had a 10 percent annual interest rate. The note is to be repaid by making annual cash payments of $31,547 that include both interest and principal on December 31 of each year. Sneed used the proceeds from the loan to purchase land that generated rental revenues of $40,000 cash per year.
Required
a.Prepare an amortization schedule for the four-year period.
b. Organize the information in accounts under an accounting equation.
c. Prepare an income statement, a balance sheet, and a statement of cash flows for each of the four years.
d. Does cash outflow from operating activities remain constant or change each year? Explain.
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