Case 6-8

Morgan Company grows various crops and then processes them for sale to retailers. Morgan has changed its depreciation method for its processing equipment from the double-declining-balance method to the straight-line method effective January 1 of this year.

In the latter part of this year, a large portion of Morgans crops were destroyed by a hailstorm. Morgan has incurred substantial costs in raising the crops that were destroyed. Severe damage is rare in the locality where the crops are grown.

Required:

A) How should Morgan calculate and report the effect(s) of the change in depreciation method in this years income statement?

B) where should Morgan report the effects of the hailstorm in its income statement? Why?

C) how does the classification in the incoem statement of an extraordinary item differ from that of an operating item? Why?