Question

Risk Management Internal Service Fund

In an effort to reduce costs and consolidate its risk management activities, the City of Eagleton established the Risk Management Fund as an internal service fund. The purpose of the Risk Management Fund is to obtain liability coverage for the city, pay claims not covered by insurance, and to charge individual departments in amounts sufficient to cover current year costs and to establish a reserve for losses. Record journal entries for the following transactions in the risk management fund for fiscal year 2018.   Revenues and expenditures should be recorded directly to specific revenue and expenditure accounts as needed. See the risk management fund general ledger for specific accounts used by the city.

CHART OF ACCOUNTS

• Cash
• Investment
• Prepaid Insurance
• Equipment
• Accumulated DepreciationEquipment
• Accrued Liabilities
• Charges for Services
• Investment Income
• Transfers In
• Salaries Expense
• Depreciation Expense
• Contractual Service
• Insurance Claims

TRANSACTIONS:

1. A transfer of $600,000 was received from the general fund to establish the Risk Management Fund.
2. Insurance coverage (prepaid) was purchased for $250,000. The policy requires that the city self-insure for up to $25,000 per incident.
3. Office equipment was purchased for $25,000.
4. $225,000 was invested in marketable securities.
5. Actuarial estimates were made to determine the amounts necessary to cover current year costs and establish a reserve. As a result, the Risk Management Fund billed and collected $255,000 year from the General Fund during the year.
6. Interest and dividends received totaled $15,750
7. Salaries of $95,000 were paid during the year.
8. Claims paid under self-insurance totaled $84,500 during the year.
9. The office equipment was depreciated for the year for $5,000
10. At year-end, $210,000 of the insurance policies purchased earlier in the year had expired. This was charged to Contracted Services.
11. The market value of investments at December 31, 2018 totaled $231,000.
12. In addition to claims paid in (5), estimates for the liability for the city’s portion of known claims totaled $76,000

Answer 1