Net operation loss carryforward:

Solutions Inc. reported a pretax operating loss of $540,000 for financial reporting purposes in 2020. Contributing to the loss were

a. a penalty of $20,000 assessed by the Environmental Protection Agency for violation of a

federal law. It was paid in 2020 and

(b) an estimated loss of $40,000 from accruing a loss contingency. The loss was paid in 2021.

The enacted tax rate is 40%. There were no temporary or permanent differences at the beginning of the year and none originating in 2020 other than those described above. Taxable income in Solutions Inc.s two succeeding years of operation was as follows:

2021 300,000 2022. 120,000

Required:

1.Prepare the journal entry to recognize the income tax effect of the net operating loss in 2020.

2.Present the lower portion of the 2020 income statement that includes the income tax effects of the net operating loss.

3.Prepare the journal entry to record income taxes in 2021

Please explain the steps in detail. It would help a lot. You all are amazing.