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:

Mature Organization

An organization that has developed advanced systems and processes, demonstrating stability, resilience, and a high level of operational effectiveness.

Organizational Culture

The set of shared beliefs, values, norms, and practices that characterizes an institution or organization, influencing how people behave and interact within it.

External Monitoring

The process of assessing and evaluating an organization's performance or compliance by an external body or mechanism.

CEO

The highest-ranking executive in a company or organization, responsible for making major corporate decisions.