Drive Fast Inc. has adopted a policy of recording self-insurance (absence of insurance or uninsured) for any possible losses resulting from injury to others by the company's vehicles. The premium for an insurance policy for the same risk from an independent insurance company would have an annual cost of $4,000. During the period covered by the financial statements, there were no accidents involving the company's vehicles that resulted in injury to others.

1. Determine the appropriate accounting treatment, including the accrual or type of disclosure necessary (if any) and the reason(s) why such treatment is appropriate for the set of facts. Very briefly discuss your findings (not a formal memo) and provide citations for your authority.

Answer rating: 100% (QA)

Situation 1 it would be sufficient to disclose contingent liabilities in the notes to accounts If ho... View the full answer