Question

In 2017, Sunny City instituted a policy of self-insuring for employee injury claims. The following information pertains to Sunny City's liability for such claims:

Claims paid in 2017 $500,000
Current liability for claims at 12/31/17 140,000
Noncurrent liability for claims at 12/31/17 200,000
What is the amount of liability for claims that should be reported in the fund-basis financial statements at December 31, 2017, assuming Sunny City accounts for its self-insurance activities in:
GENERAL FUND INTERNAL SERVICE FUND (BALANCE SHEET) (STATEMENT OF NET ASSETS)
a. $0 $140,000
b. $0 $340,000
c. $140,000 $340,000
d. $340,000 $340,000

Answer 1

The liability for claims in Sunny City's General Fund would be $140,000, representing current liabilities. The Internal Service Fund would report a total of $340,000, combining both current and noncurrent liabilities.

Step-by-step explanation:

In 2017, Sunny City started self-insuring for employee injury claims. By the end of the year, Sunny City had paid claims totaling $500,000. Furthermore, they reported current and noncurrent liabilities for claims amounting to $140,000 and $200,000, respectively. For the fund-basis financial statements on December 31, 2017, we need to determine the correct amount of liability to be reported in the General Fund and Internal Service Fund (Balance Sheet and Statement of Net Assets).

Generally, current liabilities are those due within one year, and noncurrent liabilities are due in more than one year. Since General Funds typically do not report long-term liabilities, only the current liability of $140,000 would be reported in the General Fund. Contrarily, the Internal Service Fund would report both current and noncurrent liabilities, totaling $340,000.

Therefore, the correct answer is:

• General Fund: $140,000
• Internal Service Fund (Balance Sheet) (Statement of Net Assets): $340,000