1. Identify all the accounting policy changes and accounting estimates that Harnischfeger made during 1984. Estimate, as accurately as possible, the effect of these on the company’s 1984 reported profits. The first change that unfairly advantage to the corporation was the depreciation method, which was changed from accelerated to straight line depreciation (in a retroactive form, which affects the past for all the assets). The cumulative effect was a total of increase in profit of 11 million dollars or 93 cents per share. In this way, the company didn’t actually perform better (as shown in the income statement). The second change that reflected better numbers in their statements was the inventories. They changed the way they kept its value (they used FIFO for domestic materials, while using LIFO for imported material). Then, they made a "LIFO liquidation", that according to a small research we made, it's a managerial move done to lower the COGS, thus, increasing the profit margin out of nowhere. The net effect of this change was a 2.4 million increase in profit. Another important change was the transactions made with Kobe Steel, the supplier of machinery who the corporation was the exclusive distributor in the US market. In the past, they used to record only the gross profit on every sale made from any Kobe equipment (this is, sell price minus paid price to Kobe). Now, to “better reflect” the deal with Kobe, the corporation started to record the full selling price on every Kobe equipment that they sold. This boosted the revenues of the company, although also boosted the COGS. This gave a net effect of net sales was an increase on 28 millions. The same way, they started to include for "certain foreign subsidiaries", which brought an additional of 5.4 millions in net sales. An important change in policy was the pension change because they believed that the then-current plan was overfunded. In that way, they...
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