Read the “Harnischfeger Corp” case study and answer the following questions. Submit your completed assignment no later than the last day of Week 2. 1.
Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements. In 1984 they changed to the straight-line method of depreciation from the accelerated depreciation method for their machinery, plants, and equipment. This change lowered the total cost which increased their profit. Instead of stating the Kobe Steel, LTD sales by the gross margin per unit they included them in their net sales. Their foreign subsidiaries were also included in their financial statements.
What is the effect of the depreciation accounting method change on the reported income in 1984? How will this change affect profits in future years? Net income increased to 11 million in 1984. The change will decrease profits in future years. If they would have used the accelerated method the depreciation expense would have been lower as the years went by but with the straight line the amount of depreciation will be the same for the life of the asset.
What is the effect of the depreciation lives change? How will this change affect future reported profits? The depreciation lives change decreases the annual depreciation expense. This change will cause future reported profits to increase. This change increased net income to $3.2 million.
The depreciation accounting changes assume that Harnischfeger’s plant and machinery will last longer and will lose their value more slowly. Given the business conditions Harnischfeger was facing in its primary industries in 1984, are these economic assumptions justified? I do believe these assumptions were justified; since Harnischfeger’s sales had diminished then they probably had used the machinery less which would hopefully mean that it would last longer since it did have less wear and tear on it.
In Note 7, Harnischfeger describes the...
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