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9. Ashland Corporation claimed in its tax return a deduction in the amount of $8 million. Ashland believes that particular deduction is legitimate and knows

9. Ashland Corporation claimed in its tax return a deduction in the amount of $8 million.
Ashland believes that particular deduction is legitimate and knows that, historically, the IRS has challenged many deductions of this type. Management believes it is more likely than not that the position will be upheld if later challenged. The following table represents managements estimates of the likelihood of various amounts of tax benefit that would be upheld:
($ in Millions)
Amounts of tax benefit $8 $7 $6 $5 $4
Percentage of likelihood 10% 20% 25% 25% 20%
Cumulative probability 10% 30% 55% 80% 100%
In Ashlands December 31 financial statements, the company should record, if any, an
additional tax liability in the amount of:
A. $0
B. $3 million
C. $4 million
D. $2 million

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