On January 1, 2013, Spain Co. borrowed cash from First Bank by issuing a $250,000 face value, four year term note that had an 8 percent annual interest rate. The note is to be repaid by making annual cash payments of $75,480 that include both interest and principal on December 31 of each year. Spain used the proceeds from the loan to purchase land that generated rental revenues of $90,000 cash per year.
Required:
a. Prepare an amortization schedule for the four year period.
b. Prepare an income statement, balance sheet, and statement of cash flows for each of the four years.
c. Given that revenue is the same for each period, explain why net income increases each year.