On November 24, 2021, 26 passengers on Wong Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling NT$9,000,000 were filed on January 11, 2022, against the airline by 18 injured passengers. The airline carries no insurance. Legal counsel has studied each suit and advised Wong that it can reasonably expect to pay 60% of the damages claimed. The financial statements for the year ended December 31, 2021, were authorized for issuance on February 27, 2022.

Instructions

a. Prepare any disclosures and journal entries required by the airline in preparation of the December 31, 2021, financial statements.

b. Ignoring the November 24, 2021, accident, what liability due to the risk of loss from lack of insurance coverage should Wong Airlines record or disclose? During the past decade, the company has experienced at least one accident per year and incurred average damages of NT$3,200,000. Discuss fully.