Tanner, Inc. incurred a financial and taxable loss for 2007. 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 2007 financial statements?

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Quizplus · Accepted Answer

The refund from a carryback is reported as a reduction of the loss in the year the loss occurred (2007 in this case), because it directly reduces the amount of taxable income for that year, effectively decreasing the loss reported on the financial statements for that year. This treatment aligns with the matching principle, ensuring that the tax benefit is recognized in the same period as the loss that generated the benefit.