First build - 1982 KZ1000 Police

That small amount of carbon won't have any influence. If that many miles there would be a pronounced ridge. Take your measurements and post them for us.
Steve

Good luck with everything..........I started in the same way as yourself, bought a beater lower end for $25 just so I could tear it apart without worrying, it ends up that I will use the crank from that motor do I am ahead. They are dead simple inside, especially compared to what I was expecting, half a million cogs, springs going everywhere etc etc....none of that. There is no guarantee that your bike went round the clock....some police bikes were kept as ceremonial use only, some as backup bikes and as such have very few miles on them, you may be in luck who knows.......the only worry I see are the camshafts, that looks like a bit more than surface rust.
Also do yourself a massive favor and get a Factory Service Manual, then ditch the Clymer, it has some erroneous information in it especially torque settings, and missing stuff......cruise ebay and you will find a few.
Looking froward to your build

That's good to hear.

I was looking around for a factory manual before I bought the Clymer, but couldn't find one. I'll give it another go.

Still waiting on some parts and tools before I can get started on the engine this weekend, but I did get some controls, levers, turn signals and grips in the mail

What do the valve faces and stems look like?
Steve

Finally had some time to take pictures of valve stems and faces + take measurements of the pistons, rings and bores. I don't have a micrometer, so all measurements are from feeler gauges and a digital caliper. Where one size on the feeler gauge felt too lose and the next size up felt too tight, I split the difference. Here goes...

Piston 1:
Outside Diameter 69.85mm
Clearance in bore 0.045mm
Ring 1 gap 0.4mm (clearance in groove 0.045mm)
Ring 2 gap 0.35mm (clearance in groove 0.045mm)
Ring 3 gap 0.7mm
Ring 4 gap 0.65mm

Piston 2:
Outside Diameter 69.83mm
Clearance in bore 0.04mm
Ring 1 gap 0.6mm (clearance in groove 0.05mm)
Ring 2 gap 0.35mm (clearance in groove 0.045mm)
Ring 3 gap 0.7mm
Ring 4 gap 0.9mm (OUTSIDE LIMIT - IS THIS AN ISSUE?)

Piston 3:
Outside Diameter 69.87mm
Clearance in bore 0.06mm
Ring 1 gap 0.3mm (clearance in groove 0.065mm)
Ring 2 gap 0.35mm (clearance in groove 0.04mm)
Ring 3 gap 0.65mm
Ring 4 gap 0.6mm

Piston 4:
Outside Diameter 69.85mm
Clearance in bore 0.045mm
Ring 1 gap 0.35mm (clearance in groove 0.065mm)
Ring 2 gap 0.4mm (clearance in groove 0.04mm)
Ring 3 gap 0.7mm
Ring 4 gap 0.7mm

As far as I can tell, these measurements are all within the wear limits, except for the ring gap on ring 4 in piston 2.

And pics of the valve stems/faces, they're all in the same condition, pretty much...

Valves look new.
steve

Sweet! So if I get new valve seals and clean off the rust on camshaft, valve head, etc (with scotchbrite and oil? Or chemical rust remover?), I should be OK to put it all back together?

I'd keep an eye on the cams. Lap the valves lightly and see how they seat. I put in new springs last time around. Now my valve train sings like new. $68 was worth it. New rings too.
Steve
kzrider.com/forum/13-bike-related/599607-the-good-guys

Yesterday I received a cable for the starter motor, so I decided to install it. Putting the engine back together one piece at a time... I took off the cover for the alternator, so I could better seat the starter motor in the gear in there. I noticed that a chip in the coating on one of the magnets, about 4x8mm. I still have the chip. Wondering if this could be a potential issue? If I should try and glue it back on or somehow recoat the chipped piece? Has anyone experienced this before?

As long as the magnet is not cracked you can use a light coat of JB weld to seal it.
Steve

Magnet looks fine, it's just a chip. Thanks, Steve!