In its 2015 financial report, Meeks Company reported $850,000 under the line item “extra ordinary losses” on the income statement. The company’s tax rate is 35 percent. The footnote pertaining to extraordinary losses indicates that the $850,000 loss, before tax, is composed of the following items:
1. A loss of $260,000 incurred on a warehouse in Florida damaged in a hurricane.
2. A loss of $150,000 incurred when Meeks sold the assets of a business segment.
3. A loss of $225,000 incurred when a warehouse in Iowa was blown up by a disgruntled employee.
4. Accounts receivable written off in the amount of $125,000.
5. A loss of $90,000 incurred when one of the company’s distribution centers in Arizona was damaged by a flood.
a. Discuss how each of these items should be disclosed in the financial statements, including whether or not they should be disclosed net of tax.
b. Show how the “extraordinary items” section of the income statement should have been reported.