Weyerhaeuser Company is engaged principally in the growing and harvesting of timber and the manufacture, distribution, and sale of forest products. When Mount St. Helens, a volcano located in Washington State, erupted, 68,000 acres of the company's standing timber, logs, buildings, and equipment were destroyed. As a result, the company recognized a $36 million (net of tax) extraordinary loss on its income statement.
REQUIRED:
a. What must have been true for Weyerhaeuser to classify this event as extraordinary?
b. If Mount St. Helens continues to erupt periodically, would future related losses necessarily be classified by Weyerhaeuser as extraordinary? Why or why not?
c. At the same time of the eruption, Weyerhaeuser's income tax rate was approximately 48 percent. Compute the entire loss (ignoring the tax effect) incurred by the company, and provide the journal entries prepared by the company's accountants to record the loss and the related income tax effect.