On January 1, 2011, 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. Prepare an income statement, balance sheet, and statement of cash flows for each of the three years. (Record the transactions for each year in T-accounts before preparing the financial statements.)

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