Sigma Company suffers a loss to its building in a fire and spends $100,000 on repairs and improvements.It judges that $80,000 of the expenditure replaces long-lived assets lost in the fire, and $20,000 represents improvements to the building.Which of the following is the single journal entry that Sigma Company will make?
A) Building . . . . . . . . . . .. . . . . . 100,000
Cash . . . . . . . . . . . . . . . . . . . . . 100,000

B) Loss from Fire . . . . . .. . . . . . 100,000
Cash . . . . . . . . . . .. . . . . . 100,000

C) Cash . . . . . . . . . . . . . . 100,000
Building . . . . . . . . . . . . . 20,000
Loss from Fire . . . . . . . . . . . . . . . 80,000

D) Building . . . . . . . . . . . .. . . . . . . . . 20,000
Loss from Fire . . . . . . . . . . . . . . . . 80,000
Cash . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 100,000

E) Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Loss from Fire . . . . . . . . . . .. . . . . . . . 100,000

Question

Sigma Company suffers a loss to its building in a fire and spends $100,000 on repairs and improvements.It judges that $80,000 of the expenditure replaces long-lived assets lost in the fire, and $20,000 represents improvements to the building.Which of the following is the single journal entry that Sigma Company will make?
A) Building . . . . . . . . . . .. . . . . . 100,000  
   Cash . . . . . . . . . . . . . . . . . . . . .  100,000

B) Loss from Fire   . . . . . .. . . . . .  100,000  
   Cash . . . . . . . . . . .. . . . . . 100,000

C) Cash . . . . . . . . . . .  . . .  100,000  
   Building . . . . . . . . . . . . .  20,000  
   Loss from Fire   . . . . . . . . . . . . . . . 80,000

D) Building . . . . . . . . . . . .. . . . . . . . . 20,000  
Loss from Fire   . . . . . . . .  . . . . . . . .    80,000  
   Cash . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 100,000

E) Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000  
   Loss from Fire   . . . . . . . . . . .. . . . . . . . 100,000

Quizplus · Accepted Answer

The correct entry is D because it accurately reflects the transaction: $20,000 is allocated to the building for improvements (an asset increase), and $80,000 represents the loss from the fire (an expense), with a total cash outflow of $100,000.

Sigma Company Suffers a Loss to Its Building in a Fire