Acc557 Financial Accounting: P7-1A Scott and Quick are accountants for Millenium Computers

Acc557 Financial Accounting

P7-1A
Scott and Quick are accountants for Millenium Computers. They disagree over the following transactions that occurred during the calendar year 2008.

For each transaction, indicate why Quick disagrees. Identify the accounting principle or assumption that Scott would be violating if his suggestions were used. Prepare the correct journal entry for each transaction, if any. (If there is no transaction, enter No entry as the description and 0 for the amount.)
1. Scott suggests that equipment should be reported on the balance sheet at its liquidation value, which is $15,000 less than its cost.
2. Millenium bought a custom-made piece of equipment for $36,000. This equipment has a useful life of 6 years. Millenium depreciates equipment using the straight-line method. "Since the equipment is custom-made, it will have no resale value. Therefore, it shouldn't be depreciated but instead should be expensed immediately," argues Scott. "Besides, it provides for lower net income."
3. Depreciation for the year was $18,000. Since net income is expected to be lower this year, Scott suggests deferring depreciation to a year when there is more net income.
4. Land costing $60,000 was appraised at $90,000. Scott suggests the following journal entry.
Account Description Debit Credit
Land 30,000
Gain on Appreciation of Land 30,000
5. Millenium purchased equipment for $35,000 at a going-out-of-business sale. The equipment was worth $45,000. Scott believes that the following entry should be made.
Account Description Debit Credit
Equipment 45,000
Cash 35,000
Gain on Purchase of Equipment 10,000
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