During 2011, Jackson Company became involved in a tax dispute with the IRS. At December 31, 2011, Jackson's tax adviser believed that an unfavorable outcome was probable and a reasonable estimate of additional taxes was $500,000 but could be as much as $650,000. After the 2011 financial statements were issued, Jackson received and accepted an IRS settlement offer of $550,000. What amount of accrued liability would Jackson have reported in its December 31, 2011, balance sheet?

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Jackson would report an accrued liability of $500,000, as it was the reasonable estimate of the additional taxes at the time the financial statements were prepared, and an unfavorable outcome was probable.

During 2011, Jackson Company Became Involved in a Tax Dispute