It Is Early in February 2020 and You Are Conducting

question 7

Essay

It is early in February 2020 and you are conducting the audit of Blast Off Airline's 2019 financial statements. Through discussion with Blast Off's Chief Financial Officer you learn of matters that have not yet been incorporated into the 2019 financial statements:
In July 2019, 127 passengers on board Blast Off Airlines Flight 007 were seriously injured when the plane missed the runway on final approach. In January 2020, 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.
Required:
Prepare the journal entries to record the required adjustments for the above event.

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Definitions:

Desired Response

The preferred or intended outcome of a particular behavior or action.

Closer Approximations

Represents a method or process in mathematics and science for estimating a value or position with increasing accuracy.

Reinforcement Contingency

A condition where the delivery of a reinforcement depends on the occurrence of a specific behavior.

Skinner Box

A controlled environment used to study behavior conditioning by training animals through rewards and punishments.