Harnischfeger Case

Topics: Depreciation, FIFO and LIFO accounting, Pension Pages: 4 (1207 words) Published: November 2, 2014
Directions
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. •Based on the financial statements in 1984 Harnischfeger made changes from the previous year, the corporation computed depreciation expenses on plants, machinery and equipment using the straight-line method. Prior to the accounting changes in 1984, the company had experienced some financial losses was able to recover. There has been a change in depreciation accounting when it comes to profit. Before they used to apply the accelerated methods for the operating plants. The changes were made to provide a more equitable allocation of the cost of plants, machinery and equipment over their useful lives. •On the previous year, the corporation used principally accelerated methods for its US operating plants. This effect of this change, which was retroactively applied to all assets previously subjected to accelerated depreciation, increased net income for 1984 by $11.0 million or $.93 per common and common equivalent share 2.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 cumulative effect of this change has led to an increase in net income by $11.0 million or $.93 per common and common equivalent share. The impact of the new method for the year 1984 before the cumulative effect was insignificant. 3.What is the effect of the depreciation lives change? How will this change affect future reported profits? •The depreciation lives of certain U.S. plants, machinery and equipment has changed. Consequently this increased net income by $3.2 million or $.27 per share. There was no income tax effect. 4.The depreciation accounting changes assume that Harnischfeger’s plant and machinery will...
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