1.) On January 1, 2011, Climax Corporation signed a $10,000,000, 6%, 10-year mortgage note to finance the construction of its new hotel in Cancun. The note will be repaid in 10 equal annual installments of $1,358,679. Over the 10-year period, as each installment payment is made, the portion of the payment that is used to reduce the principal will ________.

a.) decrease

b.) stay the same

c.) increase

d.) The answer cannot be determined from the information given,

(can someone explain why you chose the answer)

2.) Avatar, Inc.December 31, 2011 annual report

Income statement Balance Sheet

Sales Revenue $80,000 12/31/11 12/31/10

Unearned Revenue $5,000 $9,000

Insurance expense $20,000

Prepaid insurance $3,000 $2,000

Note Avatar always collects cash from its customers in advance.

Cash paid for insurance on Avatar Inc statement of cash flows equals

a.) $22,000

b.) $19,000

c.) $21,000

d.) $23,000