During 2005, Tedd Co. became involved in a tax dispute with the IRS. At December 31, 2005, Tedd's tax advisor believed that an unfavorable outcome was probable.

A reasonable estimate of additional taxes was $400,000 but could be as much as $600,000.

After the 2005 financial statements were issued, Tedd received and accepted an IRS settlement offer of $450,000.

What amount of accrued liability should Tedd have reported in its December 31, 2005 balance sheet?

$500,000

$600,000

$400,000

$450,000