It Is Early in February 2017 and You Are Conducting

question 37

Essay

It is early in February 2017 and you are conducting the audit of Blast Off Airline's 2016 financial statements.Through discussion with Blast Off's Chief Financial Officer you learn of matters that have not yet been incorporated into the 2016 financial statements:
In July 2016,127 passengers on board Blast Off Airlines Flight 007 were seriously injured when the plane missed the runway on final approach.In January 2017,the injured passengers launched a class action lawsuit against Blast Off seeking damages of $15 million.Blast Off's internal investigation of the incident determined that the pilot was intoxicated during the flight.The company's solicitors suggest that if the matter goes to court,Blast Off will be found liable and ordered to pay the $15 million.
In an attempt to reduce its loss,Blast Off's solicitors made a settlement offer of $10 million to the plaintiffs.The litigants' attorney has not provided a formal response but has indicated that the offer is being seriously considered.Blast Off's lawyers estimate that there is a 90% probability the plaintiffs will accept the offer.
Requirement:
Prepare the journal entries to record the required adjustments for the above event.

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Definitions:

Wrongful Interference

An unlawful action that intentionally disrupts a contractual or business relationship resulting in harm.

Contractual Relationship

A legally binding agreement between parties that outlines the terms and conditions of their association, duties, rights, and responsibilities.

Business Relationship

Business Relationship pertains to interactions and engagements between two or more businesses or between businesses and customers, often defined by contracts or transactions.

Invasion of Privacy

A violation or intrusion into an individual's personal life or affairs without consent, which can be subject to legal penalties.