Harnischfeger

Topics: Income statement, Depreciation, Expense Pages: 2 (1009 words) Published: October 30, 2014

Read the “Harnischfeger Corp” case study and answer the following questions. Submit your completed assignment no later than the last day of Week 2. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements. They included products purchased from Kobe Steel in their net sales causing them to increase by $5.4 million. They changed the way they compute depreciation expense by using the straight-line method, resulting in an increase in net income by $11 million or $.93 per common share. The depreciation policy and residual values were changed as well of machinery, plants, and equipment, which caused and increase in net income by $3.2 million or $.27 per share. 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? The net income increased by $11 million from changing the depreciation accounting method to the straight-line method. This will cause profit to increase in future years. What is the effect of the depreciation lives change? How will this change affect future reported profits? The effect from the change in the depreciation lives caused an increase of $3.2 million. The future reported profits would increase as well. 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? Yes, these economic assumptions are justified due to the fact that the company was having a loss in sales that causes them to use the machinery less often. With that being said, the machinery would last longer and will lose their value more slowly. In Note 7, Harnischfeger describes the effect of LIFO inventory liquidation on its reported profits in 1984. Describe what is meant by LIFO liquidation and how liquidation affects a...
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