It is early in February 2021 and you are conducting the audit of Adventuresome Airlines Ltd.’s 2020 financial statements. Through discussion with Adventuresome’s chief financial officer, you learn of matters that have not yet been incorporated into the 2020 financial statements: 

■ In July 2020, 57 passengers on board Adventuresome Airlines Flight 007 were seriously injured when the plane missed the runway on final approach. In January 2021, the injured passengers launched a class action lawsuit against Adventuresome seeking damages of $10 million. Adventuresome’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, Adventuresome will be found liable and ordered to pay the $10 million.

 In an attempt to reduce its loss, Adventuresome’s solicitors made a settlement offer of $8 million to the plaintiffs. The litigants’ attorney has not provided a formal response but has indicated that the offer is being seriously considered. Adventuresome’s lawyers estimate that there is an 80% probability the plaintiffs will accept the offer.

■ During 2020, Adventuresome began a customer loyalty program. For each aeronautical mile that a passenger travels on a paid flight, the passenger accrues one flight mile. Passengers can redeem accrued flight miles for free air travel. Earned miles do not expire. 

Adventuresome’s analysis of its competitors’ programs suggests an average redemption rate of 80%. In 2020, Adventuresome awarded 30,000,000 flight miles, 4,800,000 of which were redeemed. Management estimates the performance obligation pertaining to the flight miles is $720,000.

Required:

Prepare the journal entries to record the required adjustments for the above events, assuming that Adventuresome reports its financial results in accordance with IFRS.