Columns 3 and 4 show the annual interest and

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Unformatted text preview: ments into their interest and principal components. Columns 3 and 4 show the annual interest and principal paid. In Table 16.2, the annual loan payment is shown in column 1, and the annual maintenance cost, which is a tax-deductible expense, is shown in column 2. Next, we find the annual depreciation write-off resulting from the $24,000 machine. Using the applicable MACRS 5year recovery period depreciation percentages—20% in year 1, 32% in year 2, 19% in year 3, and 12% in years 4 and 5—given in Table 3.2 on page 100 results in the annual depreciation for years 1 through 5 given in column 3 of Table 16.2.5 TABLE 16.1 Determining the Interest and Principal Components of the Roberts Company Loan Payments Payments End of year Loan payments (1) Beginning-ofyear principal (2) Interest [0.09 (2)] (3) Principal [(1) (3)] (4) End-of-year principal [(2) (4)] (5) 1 $6,170 $24,000 $2,160 $4,010 $19,990 2 6,170 19,990 1,799 4,371 15,619 3 6,170 15,619 1,406 4,764 10,855 4 6,170 10,855 977 5,193 5,662 5 6,170 5,662 510 5,660 —a aThe values in this table have been rounded to the nearest dollar, which results in a slight difference ($2) between the beginning-of-year-5 principal (in column 2) and the year-5 principal pa...
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