Harnischfeger Corporation

Topics: Generally Accepted Accounting Principles, Depreciation, Management Pages: 2 (571 words) Published: October 3, 2010
Harnischfeger Corporation

There were many accounting policy changes and accounting estimates that Harnischfeger made during 1984. In note two, the depreciation method was changed from accelerated to straight line method, applied on plants, machinery and equipment. The cumulative effect increased net income for 1984 by $11 million or $.93 per common and equivalent share. As a result of the review of its depreciation policy, the Corporation changed its estimated depreciation lives on certain U.S. plants, machinery, and equipment and residual values on certain machinery and equipment, which increased net income for 1984 by $3.2 million or $.27 per share. The company changed the financial year ending from July 31 to September 30 in 1984 for certain foreign subsidiaries. This increased net sales by $5.4 million in 1984. Harnischfeger began to include products purchased from Kobe Steel Ltd. and sold to third parties by the company in its net sales. This increased sales in 1984 by $28 million. In note six, the company’s research and development expense in 1984 decreased by $7 million from 1983. Kobe agreed to give up to $17 million to Harnischfeger for their research and development expense for three years. In note seven, the effect of the LIFO liquidations increased net income by 2.4 million. In note eleven, the company changed its rate of return assumption for determining pension expense from 8% in 1983 to 9% in 1984. This along with restructuring its pension plan reduced the pension expense by $4 million in 1984. There are many motives for the management of Harnischfeger to make the changes they made in the financial reporting policies. One is that management is given bonuses if the company has a profit, which provides an incentive for managers to everything they can to get profit as high as it can be. Management may also have targets that they need to meet in order to keep their job. Changing the reporting policies could also increase...
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