The Tax Cuts and Jobs Act (TCJA) changed the way NOLs are treated. It disallows the loss carryback option for most firms except some in the farming and insurance industries. Two-year carrybacks are allowed for losses in these firms.

The CARES Act became effective in 2020 in response to COVID-19 and permits most businesses to elect a 5-year carryback option for any NOLs generated between Jan 1, 2018 and December 31, 2020.

The carryforward option under both acts impose no expiration of carryforwards and are subject to the 80% carryforward limitation.

Conlin Farms had the following tax information:

 

Year Pretax/Taxable Income     Tax Rate      Taxes Paid

2014 $240,000                    38%              $91,200

2015 $190,000                    38%              $72,200

2016 $260,000                    34%              $88,400

2017 $170,000                    34%              $57,800

2018 $116,000                    21%              $24,360

2019 $205,000                    21%              $43,050

2020 ($970,000)                 21%

2021 $180,000                    21%

 

1. Assuming Conlin elects the carryforward option, prepare the journal entries to record income tax expense for 2020 and 2021.
2. Assuming Conlin elects the carryback option, prepare the journal entries to record income tax expense for 2020 and 2021.

 

1. Assuming Conlin elects the carryback option and the CARES Act is NOT in effect, Prepare the journal entries to record income tax expense for 2020 and 2021.
2. Briefly describe the potential $ impact of the CARES Act for Conlin Farms.