an effort to consolidate its risk management activities, the Town recently decided to establish an internal service fund, the Risk Management Fund. The Risk Management Fund?s purpose is to obtain liability coverage for the Town, to pay claims not covered by the insurance, and to charge individual departments in amounts sufficient to cover current year costs and to establish a reserve for losses. The Town reports proprietary fund expenses by object classification using the following accounts: Personnel services (salaries), Contractual services (for the expired portion of prepaid service contracts), Depreciation, and Proprietary Funds 183 Insurance Claims. The following transactions relate to the year ended December 1, 2012, the first year of the Risk Management Fund?s operations.1. The Risk Management Fund is established through a transfer of $500,000 from the General Fund and a long-term advance from thewater utility enterprise fund of $250,000.2. The Risk Management Fund purchased (prepaid) insurance coverage through several commercial insurance companies for $200,000. The policies purchased require the Town to self-insure for $25,000 per incident.3. Office Equipment is purchased for $10,000.4. $450,000 is invested in marketable securities.5. Actuarial estimates were made in the previous fiscal year to determine the amount necessary to attain the goal of accumulating sufficient funds to cover current-year claims and to establish a reserve for losses. It was determined that the General Fund and water utility be assessed a fee of6 percent of total wages and salaries (Interfund premium). Wages and salaries by department are as follows:Public Safety 5,000,000General Administrative Operations 1,500,000Education 1,500,000Water Utility 2,500,000Total 10,500,0006. Cash received in payment of interfund premiums from the General Fund totaled $275,000 and cash received from the Water Utility totaled $100,000.7. Interest and dividends received totaled $27,000.8. Salaries for the Risk Management Fund amounted to $200,000 (all paid during the year).9. Claims paid under self-insurance totaled $150,000 during the year.10. The office equipment is depreciated on the straight-line basis over 5 years.11. At year-end, $190,000 of the insurance policies purchased in January had expired.12. The market value of investments at December 31 totaled $456,000 (Hint: credit Net Increase in Fair Market Value of Investment ).
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