Czyz and Ng are accountants at Kwick Kopy Printers. Kwick Kopy has not adopted the revaluation model for accounting for its property, plant, and equipment. The accountants are having disagreements over the following transactions during the fiscal year ended December 31, 2014:

1. Kwick Kopy bought equipment on January 1, 2014, for $80,000, including installation costs. The equipment has a useful life of five years. Kwick Kopy depreciates equipment using the double diminishing-balance method.

"Since the equipment as installed in our system cannot be removed without considerable damage, it will have no resale value. It should not be depreciated but, instead, expensed immediately," Czyz argues.

2. Depreciation for the year was $43,000. Since the company's profit is expected to be low this year, Czyz suggests deferring depreciation to a year when there is higher profits.

3. Kwick Kopy purchased equipment at a fi re sale for $36,000. The equipment would normally have cost $50,000. Czyz believes that the following entry should be made:

Equipment...................................................50,000

Cash....................................................................36,000

Gain on Fair Value Adjustment of Equipment..................14,000

4. Czyz says that Kwick Kopy should carry its furnishings on the balance sheet at their liquidation value, which is $30,000 less than cost.

5. Kwick Kopy rented office space for one year, effective September 1, 2014. Six months of rent at $3,000 per month was paid in advance. Czyz believes that the following entry should be made on September 1:

Rent Expense.............................................18,000

Cash...................................................................18,000

6. Land that cost $41,000 was appraised at $60,000. Czyz suggests the following journal entry:

Land 19,000 Gain on Fair Value Adjustment of Land 19,000

7. On December 15, Kwick Kopy signed a contract with a customer to provide copying services for a six-month period at a rate of $1,500 per month starting January 1, 2015. The customer will pay on a monthly basis. Czyz argues that the contract should be recorded in December because the customer has always paid its bills on time in the past. The customer is legally obligated to pay the monthly amount because a contract has been signed.

Czyz believes the following entry should be recorded:

Accounts Receivable..................................9,000

Service Revenue.....................................................9,000

Ng disagrees with Czyz in each of the situations.

Instructions

(a) For each transaction, indicate why Ng disagrees. Support your answer with reference to the conceptual framework definition of elements, qualitative characteristics, assumption, constraint, recognition, and measurement criteria.

(b) Prepare the correct journal entry to record each transaction.

Taking It Further

Discuss the circumstances in which it is appropriate to record property, plant, and equipment at its liquidation value.