Question

Problem 13-10 On November 24, 2017, 26 passengers on Windsor Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling $9,681,000 were filed on January 11, 2018, against the airline by 18 injured passengers. The airline carries no insurance. Legal counsel has studied each suit and advised Windsor hat it can reasonably expect pay 60% of the damages claimed The financial statements or the year ended December 3 201, were ssued February 27, 2018. (a2) Prepare the journal entry required by the airline in preparation of the December 31, 2017, financial statements. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit December 31, 2017 Click if you would like to Show Work for this question: Qpen Show Work SHOW LIST OF ACCOUNTS

Answer 1

Answer 2

On November 24, 2014, 26 passengers on Windsor Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling $9,000,000 were filed on January 11, 2015, against the airline by 18 injured passengers. The airline carries no insurance. Legal counsel has studied each suit and advised Windsor that it can reasonably expect to pay 60% of the damages claimed. The financial statements for the year ended December 31, 2014, were issued February 27, 2015. Instructions (a) Prepare any disclosures and journal entries required by the airline in preparation of the December 31, 2014, financial statements. (b) Ignoring the November 24, 2014, accident, what liability due to the risk of loss from lack of insurance coverage should Windsor Airlines record or disclose? During the past decade, the company has experienced at least one accident per year and incurred average damages of $3,200,000. Discuss fully. a) The litigation occurred before the date of issue of financial statements, and as per the legal counsel the outcome is unfavorable and can be reasonably estimated, Windsor Airlines should report a loss and a liability of $5,400,000 in the financial statement for the year ended December 31, 2014. The liability and loss might be recorded as follows: Loss from Uninsured Accident ($9,000,000 X 60%) 5,400,000 Liability for Uninsured Accident Notes to the Financial Statements: 5,400,000 Due to an accident which occurred during 2014, the Company is a defendant in personal injury suits totaling $9,000,000. The Company is charging the year of the casualty with $5,400,000 in estimated losses, which represents the amount that the company legal counsel estimates will finally be awarded. b) Windsor Airlines need not establish a liability for risk of loss from lack of insurance coverage itself. FASB Statement No. 5 does not require or allow the establishment of a liability for expected future injury to others or damage to the property of others even if the amount of the losses is reasonably estimable. The cause for a loss must occur on or before the balance sheet for a loss contingency to be recorded. However, the fact that Windsor Airlines is self-insured should be disclosed in a note.