Question

During 20X5, Haft Co. became involved in a tax dispute with the IRS. At December 31, 20X5, Haft’s tax advisor believed that an unfavorable outcome was probable. A reasonable estimate of additional taxes was $200,000 but could be as much as $300,000. After the 20X5 financial statements were issued, Haft received and accepted an IRS settlement offer of $275,000. What amount of accrued liability should Haft have reported in its December 31, 20X5 balance sheet?

Answer 1

Answer:

a) $200,000

Explanation:

The computation of the accrued liability is shown below:

In case when there is a range of expected losses that could be predicted and in that case no amount could be more anticipated than the others so the lesser predicted value should be accrued.

In the given case, the lower value is $200,000 so the same is to be considered

hence, the correct option is a.