Palto County elects not to purchase commercial insurance. Instead, it sets aside resources for potential claims in an internal service ‘‘self-insurance’’ fund. During the year, the fund recognized $4 million for claims filed during the year. Of this amount, it paid $2.3 million. Based on the calculations of an independent actuary, the insurance fund billed and collected $5.0 million in premiums from the other county departments insured by the fund. Of this amount, $3.2 million was billed to the funds accounted for in the general fund and $1.8 million to the county utility fund. The total charge for premiums was based on historical experience and included a reasonable provision for future catastrophe losses.
Required
1. Prepare the journal entries in the internal service fund to record the claims recognized and paid and the premiums billed and collected.
2. Prepare the journal entries in the other funds affected by the above.
3. If the county accounted for its self-insurance within its general fund, how would the above entries differ?