DURING 2010, LITMAN COMPANY BECAME INVOLVED IN A TAX DISPUTE WITH THE IRS. AT DE

Question

DURING 2010, LITMAN COMPANY BECAME INVOLVED IN A TAX DISPUTE WITH THE IRS. AT DECEMBER 31, 2010 LITMAN'S TAX ADVISER BELEIVED THAN AN UNFAVORABLE OUTCOME WAS PROBABLE AND A REASONABLE ESTIMAE OF ADDITIONAL TAXES WAS $500,000 BUT COULD BE AS MUCH AS $650,000. AFTER THE 2010 FINANCIAL STATEMENTS WERE ISSUED LITMAN RECEIVED AND ACCEPTED AN IRS SETTLEMENT OFFER OF $550,000. WHAT AMOUNT OF ACCURED LIABILITY WOULD LITMAN HAVE REPORTED IN ITS DECEMBER 31, 2010 BALANCE SHEET?

A) $650,000
B) $550,000
C) $500,000
D) $-0-

Explanation / Answer

Option B is the correct answer. After the 2010 financial statements were issed Litman received and accepted an IRS settlement offer of $550,000 would be the amount of accrued liability reported in its December 31, 2010 Balance Sheet.

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