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Loan interest deductions Liz Rogers just closed a $7,000 business loan that she must repay in three equal, end-of-year payments. The interest rate on the loan is 7%. As part of her firm's detailed financial planning, Liz wishes to determine the annual interest deduction attributable to the loan. (Because it is a business loan, the interest portion of each loan payment is tax-deductible to the business.) a. Determine the firm's annual loan payment. b. Prepare an amortization schedule for the loan. c. How much interest expense will Liz's firm have in each of the next 3 years as a result of this loan? a. The amount of the firm's equal, annual, end-of-year loan payment is $(Round to the nearest cent.) b. Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments. Many financial calculators have an amortization function which makes this process easy. Once the payment is determined in step a above, you can use the AMORT function to calculate the interest paid, principal paid and ending loan balance for each payment period. You should consult you calculator instructions for specific details pertaining to your calculator. What is the account balance at the beginning of year 1? (Round to the nearest cent.) Beginning- Payments of-year Loan End-of-year End-of-year principal payment Interest Principal principal 1 What is the amount of the loan payment at the end of year 1? (Round to the nearest cent.) Beginning- of-year principal $7.000 Loan payment S End-of-year 1 Payments Interest Principal End-of-year principal What is the portion of the payment that is applied to interest in year 1? (Round to the nearest cent.) Beginning- of-year principal $7.000 Loan payment $2,687.36 End-of-year 1 Payments Interest Principal End-of-year principal Loan interest deductions Liz Rogers just closed a $7,000 business loan that she must repay in three equal, end-of-year payments. The interest rate on the loan is 7%. As part of her firm's detailed financial planning, Liz wishes to determine the annual interest deduction attributable to the loan. (Because it is a business loan, the interest portion of each loan payment is tax-deductible to the business.) a. Determine the firm's annual loan payment. b. Prepare an amortization schedule for the loan. c. How much interest expense will Liz's firm have in each of the next 3 years as a result of this loan? What is the portion of the payment that is applied to the principal in year 1? (Round to the nearest cent.) Beginning- of-year principal $7,000 End-of-year 1 Loan payment $2,687.38 Payments Interest Principal $490.00 End-of-year principal What is the principal balance at the end of year 1? (Round to the nearest cent.) Beginning- of-year principal $7,000 End-of-year 1 Loan payment $2,687.36 End-of-year principal Payments Interest Principal $490.00 $2,177.38 What is the account balance at the beginning of year 2? (Round to the nearest cent.) End-of-year 1 2 Beginning- of-year principal $7,000 Loan payment $2,687.38 Payments Interest Principal $490.00 $2,177.36 End-of-year principal S4,822.64 What is the amount of the loan payment at the end of year 2? (Round to the nearest cent.) Payments End-of-year 1 Beginning- of-year principal $7,000 $4.822.64 Loan payment $2.687.36 Interest $490.00 Principal $2.177.38 End-of-year principal $4,822.64 2 What is the amount of the loan payment at the end of year 2? (Round to the nearest cent.) Payments End-of-year 1 Beginning- of-year principal $7,000 $4,822.64 Loan payment $2,687.38 Interest $490.00 Principal $2.177.36 End-of-year principal $4,822.64 2 What is the portion of the payment that is applied to interest in year 2? (Round to the nearest cent.) Payments End-of-year Beginning- of-year principal $7.000 $4.822.64 Loan payment $2.887.38 $2.687.36 Interest $490.00 Principal $2.177.38 End-of-year principal $4,822.64 2 $ What is the portion of the payment that is applied to the principal in year 2? (Round to the nearest cent.) Loan End-of-year 1 2 Beginning- of-year principal $7,000 $4.822.64 payment $2.687.36 $2.687.36 Payments Interest Principal $490.00 $2.177.36 $337.58 End-of-year principal $4,822.64 What is the principal balance at the end of year 2? (Round to the nearest cent.) Payments End-of-year 1 2 Beginning- of-year principal $7,000 $4.822.64 Loan payment $2.667.36 $2,687.36 Interest $490.00 $337.58 Principal $2.177.36 $2.329.78 End-of-year principal $4,822.64 What is the account balance at the beginning of year 3? (Round to the nearest cent.) End-of-year 1 2 3 Beginning- of-year principal $7.000 $4,822.64 Loan payment $2,687.38 $2.667.38 Payments Interest Principal $490.00 $2.177.36 $337.58 $2,329.78 End-of-year principal $4.822.64 $2,492.86 What is the amount of the loan payment at the end of year 3? (Round to the nearest cent) End-of-year Beginning- of-year principal $7,000 $4.822.64 $2,492.86 Loan payment $2,687.38 $2,687.30 Payments Interest Principal $490.00 $2.177.36 $337.58 $2.329.78 End-of-year principal S4.822.64 $2,492.86 1 2 3 What is the portion of the payment that is applied to interest in year 3? (Round to the nearest cent.) End-of-year 1 2 3 Beginning- of-year principal $7,000 $4.822.64 $2.492.86 Loan payment $2.687.36 $2.687.36 $2.687.36 Payments Interest Principal $490.00 $2,177.38 $337.58 $2.329.78 End-of-year principal S4.822.64 $2.402.86 What is the portion of the payment that is applied to the principal in year 3? (Round to the nearest cent.) Payments End-of-year 1 2 Beginning- of-year principal $7,000 $4.822.64 $2.492.86 Loan payment $2,687.36 $2.687.36 $2,687.38 Interest $490.00 $337.58 $174.50 Principal $2.177.38 $2,329.78 End-of-year principal $4,822.64 $2,492.88 3 What is the principal balance at the end of year 3? (Round to the nearest cent.) End-of-year 1 2 3 Beginning- of-year principal $7.000 $4,822.64 $2.492.86 Loan payment $2,687.36 $2,687.36 $2.687.36 Payments Interest Principal $490.00 $2,177.36 $337.58 $2.329.78 $174.50 $2.492.86 End-of-year principal $4,822.64 S2,492.86 c. The interest expense Liz's firm will have in year 1 is $. (Round to the nearest cent) The interest expense Liz's firm will have in year 2 is $ (Round to the nearest cent) The interest expense Liz's firm will have in year 3 is $. (Round to the nearest cent)