Reference no: EM132385685
Question
Dye and Zaur are accountants for SuperResorts. They disagree over the following transactions that occurred during the calendar year 2004.
1. Dye suggests that equipment should be reported on the balance sheet at its liquidation value, which is $15,000 less than its cost.
2. SuperResorts bought a custom-made piece of equipment for $24,000. This equipment has a useful life of 6 years. SuperResorts 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 Dye. "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, Dye suggests deferring depreciation to a year when there is more net income.
4. Land costing $60,000 was appraised at $90,000. Dye suggests to increase the value of land and also recognized a gain of $30,000.
5. SuperResorts purchased equipment for $30,000 at a going-out-of-business sale. The equipment was worth $45,000. Dye believes that the following entry should be made.
Zaur disagrees with Dye on each of the above situations.
Instructions
For each transaction, indicate why Zaur disagrees. Identify the accounting principle or assumption that Dye would be violating if his suggestions were used.
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