Internal Service Fund. Jaffry County operates a Risk Management Pool as an internal service fund. The Risk Management Pool provides the insurance function for the county departments through the purchase of insurance policies and the investing of resources to cover uninsured losses and deductibles. The Risk Management Pool assesses the other funds of the county for the service it provides. In turn, the funds submit claims for any losses incurred to the Risk Management Pool. Recently, the Jaffry County office building suffered fire damage that required extensive repairs. The county upgraded the materials used when repairing the building, thus extending the life of the building. The General Fund submitted all repair claims (invoices) to the Risk Management Pool, and all but $100,000 of the claims were covered by insurance. The Risk Management Pool covered the $100,000 in uninsured claims. Rather than reimbursing the General Fund for the claims, the Risk Management Pool paid the invoices. As a result, the Risk Management Pool not only recorded debits related to the expenses for the building repairs, but it also recorded debits to a Building account for those costs that added to the office building’s useful life. Never before has the Risk Management Pool recognized capital assets in its financial statements, since it is not an objective of the Risk Management Pool to hold capital assets.
Required
a. How would the General Fund and the Risk Management Pool record the assessments made by the Risk Management Pool for the services provided?
b. How would the assessments be recorded at the government-wide level?
c. When reporting at the government-wide level, does it make a difference whether the Risk Management Pool or the General Fund reports the increase in the value of the county office building? Explain your answer.
d. Since it is not an objective of the Risk Management Pool to hold capital assets and since the Jaffry County office building is a general capital asset, the county would like to remove the Building account from the Risk Management Pool’s ledger. What journal entry(ies) would you recommend to remove the Building account from the Risk Management ledger? Justify your answers.