Question

Tanner, Inc. incurred a financial and taxable loss for 2013. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2013 financial statements?

a. The reduction of the loss should be reported as a prior period adjustment.
b. The refund claimed should be reported as a deferred charge and amortized over five years.
c. The refund claimed should be reported as revenue in the current year.
d. The refund claimed should be shown as a reduction of the loss in 2013.

Answer 1

The refund from utilizing the carryback provision for a financial and taxable loss in 2013 should be reported as a reduction of the loss in the same year's financial statements.

Step-by-step explanation:

When Tanner, Inc. decides to use the carryback provisions due to a financial and taxable loss for 2013, the correct way to report this in the financial statements is as follows. The refund claimed should be reported as revenue in the current year. This means that the benefit of the carryback provision, which typically results in a tax refund, should be recognized in the same year the loss occurs. The accounting treatment is supported by the accounting principle of matching, whereby expenses and revenues should be recognized in the period in which they are incurred. Since the carryback reduces the tax payable for the past profitable years, it effectively offsets the loss for 2013, and thus should be reported as an element that reduces the current year's loss. Therefore, the correct answer to the question on how the amounts related to the carryback should be reported in the 2013 financial statements is: d. The refund claimed should be shown as a reduction of the loss in 2013.