McMurray Inc. incurred an accounting and taxable loss for 2017. The corporation 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 2017 financial statements?

Question

Quizplus · Accepted Answer

The refund claimed from the carryback should be shown as a reduction of the loss in 2017 since it is directly related to the loss incurred in that year. This means that the revised net loss for 2017 should be reported in the financial statements, taking into account the refund from the carryback. Option A is incorrect because there is no adjustment to retained earnings required as a result of the carryback. Option B is incorrect because the refund claimed should not be reported as a future charge, but rather as a reduction of the current year's loss. Option C is incorrect because the refund claimed is not revenue but rather a tax asset resulting from the loss carryback.