You are to assume the role of an accountant for Part-Time Ski, a jet ski rental company located lakeside. The owner of the company wants you to determine depreciation of a piece of inventory and minimum required selling price.
Part-Time Ski purchased a new jet ski five years ago. The company is recording depreciation using the straight-line method. The jet ski was purchased for $13,250 and has an estimated useful life of seven years and a salvage value of $1,500. The company has been recording annual depreciation of $1,679 each year for the last five years.
The owner is considering selling the jet ski. The owner would like your help deciding how much to sell it for. The owner wants to know what price it must be sold at to not record a loss.
You are to:
- Calculate accumulated depreciation at the end of year 5
- Calculate book value of the jet ski at the end of year 5
- Explain the difference between book value and fair market value
- Discuss the minimum selling price required to avoid recording a loss on the sale
