a family owns a house that they rent to others to produce income. since the house is not for their personal…

a family owns a house that they rent to others to produce income. since the house is not for their personal use, they may use depreciation as one of the expenses in their calculations to find their net income. the property is being depreciated using the straight - line depreciation method. part a: estimate the basis (cost) of the rental property. basis = $ part b: estimate the book value of the property in year 15. book value at year 15 = $ part c: estimate the book value of the property in year 25. book value at year 25 = $ part d: is your answer from part c an example of interpolation or extrapolation? interpolation extrapolation part e: rental property does not have a salvage value; it depreciates to a value of zero. estimate the class life used for this property. class life = years question help: message instructor calculator

a family owns a house that they rent to others to produce income. since the house is not for their personal use, they may use depreciation as one of the expenses in their calculations to find their net income. the property is being depreciated using the straight - line depreciation method. part a: estimate the basis (cost) of the rental property. basis = $ part b: estimate the book value of the property in year 15. book value at year 15 = $ part c: estimate the book value of the property in year 25. book value at year 25 = $ part d: is your answer from part c an example of interpolation or extrapolation? interpolation extrapolation part e: rental property does not have a salvage value; it depreciates to a value of zero. estimate the class life used for this property. class life = years question help: message instructor calculator

Answer

Explanation:

Step1: Determine the basis (cost)

The basis of the property is its initial value. Looking at the graph, when the years since purchase is 0, the book - value is the basis. Reading from the graph, at year 0, the book - value is approximately $$225000$.

Step2: Find book value at Year 15

Locate the value on the x - axis corresponding to 15 years since purchase. Then, read the y - value (book value) from the graph. The book value at year 15 is approximately $$125000$.

Step3: Find book value at Year 25

Locate the value on the x - axis corresponding to 25 years since purchase. Then, read the y - value (book value) from the graph. The book value at year 25 is approximately $$50000$.

Step4: Identify interpolation or extrapolation

Interpolation is estimating a value within the range of known data points, and extrapolation is estimating a value outside the range of known data points. The known data points seem to be in the range of 0 - 20 years. Since 25 years is outside this range, the answer from Part C is an example of extrapolation.

Step5: Estimate class life

The class life is the time it takes for the property to depreciate to zero. Since the property depreciates linearly and is at $$50000$ at year 25 and will reach $$0$, and assuming linear depreciation, if it depreciates $$50000$ in 5 years (from year 20 - 25), it will take another 5 years to reach zero. So the class life is 30 years.

Answer:

Part A: $$225000$ Part B: $$125000$ Part C: $$50000$ Part D: Extrapolation Part E: 30