Question
On January 1, Year XXX1, Umit Co. borrowed cash from Best Bank by issuing a $100,000 face value, four-year term note that had a 10%
On January 1, Year XXX1, Umit Co. borrowed cash from Best Bank by issuing a $100,000 face value, four-year term note that had a 10% 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. Umit used the proceeds from the loan to purchase land that generated rental revenues of $40,000 (received in cash) per year.
Required:
a) Prepare an amortization schedule for the $100,000 note for the four year period (i.e. show the amount applied towards interest and the amount applied to the principal for each of the four payments that Umit Co makes to Best Bank). Round off all calculations to the nearest dollar.
b) Prepare an income statement for each of the four years; Prepare a balance sheet as of December 31for each of the four years (Years XXX1 through XXX4). Assume that Umit started business on January 1, Year XXX1 by issuing common stock for $1,000 cash.
c) Does cash outflow from operating activities change or remain constant each year? Why?
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