Question

Marigold Corp. self-insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1920000 per year. The company estimates that on average it will incur losses of $1610000 per year. During 2021, $710000 worth of losses were sustained. How much total expense and/or loss should be recognized by Marigold Corp. for 2021?

Answer 1

Answer:

loss on fire and storms 710,000

insurance expense zero as the firm didn't acquire any

Explanation:

Notice it state "if the company were to obtain insurance" Which means it currently has none insurance.

If the firm had an insurance the amount of losses would be deducted from the insurance policy but there is none so we disclosure the entire loss as a result of the period.

Hence, we should recognize the entire loss on fire and storm damage of 710,000 during the year and no insurance expense.