Reference no: EM13928943

Step 2: Create a Depreciation Schedule The next step in your project is to create a depreciation schedule for the (fictional) property purchased with this loan. When the property was purchased, an appraisal was performed. The property included separate components of land and improvements (the building), and also included some fixtures (appliances, such as a refrigerator). You paid a slightly higher appraisal fee than usual, and instructed the appraiser to provide you with the following breakdown of values: Appraised Values Percentage Land $45,000 14.29% Improvements $260,000 82.54% Fixtures $10,000 3.17% Total $315,000 100.00% Your mortgage loan cost of $300,000 must be allocated between these different asset classes, so you can use the appropriate depreciable life to prepare a depreciation schedule, as shown in the following illustration: Appraised Values Percentage Cost Allocation Land $45,000 14.29% $42,857 Improvement $260,000 82.54% $247,619 Fixtures $10,000 3.17% $9,524 Total $315,000 100.00% $300,000 Now, you’ll need to use the MACRS tables to determine the amount of depreciation expense. Assume that the “improvements” represent 39-year, non residential rental property and the “fixtures” represent 7-year property. Create a depreciation schedule using the MACRS tables on pages 308–309 of your textbook. Create annual measures and a source document for annual financial statement preparation. Your textbook didn’t provide a depreciation schedule for the 39-year, non residential real property, so we’ve provided one below. The measures in the table represent the percentage by which the improvements to the real property may be depreciated, per year, based on the month placed in service, which in this case was January: Year Jan Feb March April May June July Aug Sept Oct Nov Dec 1 2.461 2.247 2.033 1.819 1.695 1.391 1.177 0.963 0.749 0.535 0.321 0.107 2 thru 39 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 The amounts in this table are carried out to the third decimal place, so some rounding errors will prevent the improvements from being fully depreciated through year 39. You should prepare the depreciation schedule only through year 30, to match the loan amortization schedule you prepared in Step 1 of the project. To check your work, you can use the following figure, which shows part of the completed depreciation schedule: Year Land Improvements Fixtures Total 1 $0 $6,094 $1,361 $7,455 2 $0 $6,349 $2,332 $8,681 ————————————-Break in Sequence————————————- 29 $0 $6,349 $0 $6,349 30 $0 $6,349 $0 $6,349 Total $0 $190,213 $9,524 $199,737