Kip can be found in Mickeyjunk Mountain. His cage lies on a drum in the left of the area. To get to him out, Mickey should start on the leftmost island and then jump from toy to toy on the Thinner ocean until he reaches the drum. If Mickey frees Kip he'll give him a swell reward. If Mickey has not yet completed the "Power the Crane" quest, he fixes the crane! If Mickey has already completed this quest, he won't do anything, but he's one of the Gremlins needed to obtain the "Gremlin Guardian" pin.
The walkthoughs on the Epic MickeyYouTube Channel fail to show how to rescue Kip.
Sometimes, no matter how many times you come back to the Floatyard and find and take a picture of the clock, the Mickey camera icon will not turn green, and Kip will still continue to ask you to take a picture of the clock, even if you have come across it.