During 2014,Ongoing Company became involved in a tax dispute with the IRS.At December 31,2014,Ongoing's tax adviser believed that an unfavorable outcome was probable and a reasonable estimate of additional taxes was $450,000 but could be as much as $650,000.After the 2014 financial statements were issued,Ongoing received and accepted an IRS settlement offer of $550,000.What amount of accrued liability would Ongoing have reported in its December 31,2014,balance sheet?

Question

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Ongoing Company should report an accrued liability of $450,000 in its December 31, 2014, balance sheet because accounting standards require the recognition of the best estimate of the expenditure required to settle the present obligation at the balance sheet date. Since the tax adviser believed an unfavorable outcome was probable and estimated the additional taxes at $450,000 (with a possibility of up to $650,000), the company should accrue the lower end of the range ($450,000) as it represents the best estimate of the obligation.

During 2014,Ongoing Company Became Involved in a Tax Dispute with the IRS.At