Sawyer Company self-insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1,500,000 per year. The company estimates that on average it will incur losses of $1,200,000 per year. During 2014, $525,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Sawyer Company for 2014?
A) $525,000 in losses and no insurance expense
B) $525,000 in losses and $675,000 in insurance expense
C) $0 in losses and $1,200,000 in insurance expense
D) $0 in losses and $1,500,000 in insurance expense

Question

Quizplus · Accepted Answer

Since Sawyer Company self-insures its property, there is no insurance expense to recognize. The only expense/loss to recognize is the $525,000 in losses sustained in 2014, which would be recognized as an expense or loss on the income statement.

Sawyer Company Self-Insures Its Property for Fire and Storm Damage