Ava and Brad are accountants for Qwik Printers. They are having disagreements concerning the following transactions that occurred during the year.

1. Qwik bought equipment for \(\$ 30,000\), including installation costs. The equipment has a useful life of 5 years. Qwik depreciates equipment using the straight-line method. "Since the equipment as installed into our system cannot be removed without considerable damage, it will have no resale value, and therefore should not be depreciated but instead expensed immediately," argues Ava. "Besides, it lowers net income."

2. Depreciation for the year was \(\$ 26,000\). Since net income is expected to be lower this year, Ava suggests deferring depreciation to a year when there is more net income.

3. Qwik purchased equipment at a fire sale for \(\$ 21,000\). The equipment was worth \(\$ 26,000\). Ava believes that the following entry should be made:

4. Ava suggests that Qwik should carry equipment on the balance sheet at its liquidation value, which is \(\$ 20,000\) less than its cost.
5. Qwik rented office space for 1 year starting October 1, 1995. The total amount of \(\$ 24,000\) was paid in advance. Ava believes that the following entry should be made on October 1:

6. Land costing \(\$ 41,000\) was appraised at \(\$ 49,000\). Ava suggests the following journal entry:

Brad disagrees with Ava on each of the situations above.
\section*{Instructions}
For each transaction, indicate why Brad disagrees. Identify the accounting principle or assumption that Ava would be violating if her suggestions were used. Prepare the correct journal entry for each transaction, if any.

Transcribed Image Text:

Equipment Cash Gain 26,000 21,000 5,000