Question

July Nelson Lewis provides freight service in Missouri, Kansas, and Illinois. The company's balance sheet includes Land, Buildings and Motor-Carrier Equipment. Lewis has a separate accumulated depreciation account for each depreciable asset. During 20X7 Lewis completed the following transactions: January 1 Traded in motor-carrier equipment with accumulated depreciation of $90,000 (cost of $130,000) for similar new equipment with a cash cost of 5176,000. Lewis received a trade-in allowance of $70,000 on the equipment and paid the remainder in cash Sold a building that cost $550,000 and had accumulated depreciation of $250,000 through December 31 of the preceding year. Depreciation is calculated on a straight-line basis. The building has a 40-year useful life and a residual value of $50,000. Lewis received $100,000 cash and a s600,000 note receivable. October 31 Purchased land and a building for a cash payment of $300,000. An independent appraisal valued the land at $115,000 and the building at $230,000 December 31 Recorded depreciation as follows: Motor-carrier equipment has an expected useful life of 1,000,000 miles and an estimated residual value of $26,000. Depreciation is units-of-production During the year, Lewis drove his truck 150,000 miles. Depreciation on buildings is straight-line. The new building has a 40-year life and a residual value equal to $20,000 a) Prepare journal entries to record each of the transactions in Nelson Lewis's journal. b) Will the gains and losses on disposal of plant assets affect the gross profit reported in the income statement?