Tanner, Inc. incurred a financial and taxable loss for 2015. 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 2015 financial statements?

Question

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The refund claimed under the carryback provisions should be shown as a reduction of the loss in the current year (2015) financial statements. This is because the carryback relates to the current year's loss and therefore should be reported as an adjustment to the current year's financials, rather than as revenue or deferred charges. Choice A is incorrect because a prior period adjustment relates to an error in a previous year's financial statements. Choice B is incorrect because the refund should not be treated as a deferred charge. Choice C is incorrect because the refund is not revenue, but rather a reduction of the loss.