Wellman Company self insures its property for fire and storm damage.If the company were to obtain insurance on the property, it would cost them $1,000,000 per year.The company estimates that on average it will incur losses of $800,000 per year.During 2007, $350,000 worth of losses were sustained.How much total expense and/or loss should be recognized by Wellman Company for 2007?
A)$350,000 in losses and no insurance expense
B)$350,000 in losses and $450,000 in insurance expense
C)$0 in losses and $800,000 in insurance expense
D)$0 in losses and $1,000,000 in insurance expense

Question

Quizplus · Accepted Answer

Since Wellman Company self insures its property, there is no insurance expense to recognize. The only expense or loss to recognize is the actual loss incurred, which in this case is $350,000. Therefore, the answer is choice A.

Wellman Company Self Insures Its Property for Fire and Storm