1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements
In 1984 they changed the depreciation method from accelerated methods to the straight-line for financial reporting purposes. This change included a adjustment of the residual values on certain machinery and equipment. They also included the products purchased from Kobe Steel, LTD and sold by them in their net sales. Moreover, they also included the financial statements of some foreign subsidiaries.
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? It increased the …show more content…
10. Summarize all the accounting changes Harnischfeger made in 1984, and their effects on pre-tax profits and cash flows in 1984.
ACTION POSITIVE EFFECT
Change of depreciation method $ 11 M
Change in useful life’s or residual values $ 3.2 M
Reduced Pension expense $ 4.0 M
LIFO Liquidation $ 2.4 M
Bad debt reserve $ 2.1 M
R&D Expense $ 7.0 M
- Change of depreciation method that was changed to expense plant, machinery and equipment from the direct method to the straight-line method for financial reporting purposes.
- Adjustment of the residual values on certain machinery and equipment was made. They also included the products purchased from Kobe Steel, LTD and sold by them in their net sales instead of stating only the gross margin per unit.
- Harnischfeger also included the financial statements of some foreign subsidiaries. Also, revenue recognition, inventory, depreciation, allowances for reserves, pension forecast and depreciation.
11.Accounting statements are used by investors, lenders, customers, employees, and governments in dealing with Harnischfeger. Among these groups, who is most likely to “see through” the above accounting changes, and who is least likely to do so?
The least likely to “see through” the accounting changes are those individuals who do not have an understanding of accounting concepts because some methods of