You are currently auditing the financial records of Paxson Corporation, which is located in San Francisco, California. During the current year, inventories with an original cost of $2,325,000 were destroyed by an earthquake. The company was unsure how to record this loss and is seeking your advice. The loss is deductible for tax purposes, and the company’s tax rate is 35 percent.

a. Prepare the journal entry (or entries) to record the loss of the inventory if the loss is not considered extraordinary.

b. Prepare the journal entry (or entries) to record the loss of the inventory if the loss is considered extraordinary.

c. Should the loss be classified as an extraordinary loss or as an ordinary loss? Explain.

d. Would your answer to (c) change if the plant had been located in Miami, Florida? Explain.