Extraordinary Items
Response to the following problem:
AICPA Adapted Morgan Company grows various crops and then processes them for sale to retailers. In the latter part of this year, Morgan had a large portion of its crops destroyed by a hail storm. Morgan has incurred substantial costs in raising the crops destroyed by the hail storm. Severe damage from hail storms in the locality where the crops are grown is rare.
Required
1. Where should Morgan report the effects of the hail storm in its income statement? Why?
2. How does the classification in the income statement of an extraordinary item differ from that of an operating item? Why? Do not discuss earnings per share requirements.