Chapter 3: Harnischfeger Case
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.
Harnischfeger made the following accounting policy changes and accounting estimates during the year 1984.
There was a change in the recognition of some types of sales. This resulted in a change in sales calculation. Harnischfeger incorporated products purchased from Kobe Steel, which were re-sold by the company, into its net sales. This increased aggregate sales and cost of sales by $28 million.
There was a change in the fiscal year for some foreign subsidiaries.
There was a …show more content…
3. Assess the company's future prospects, given your insights from questions 1 and 2 and the information in the case about the company's turnaround strategy.
Harnischfeger is taking a huge risk by relying and expecting that the one-time boost in income and cash in 1984 will enable the company to successfully expand internationally and grow in new high tech areas and become profitable once again.
Because of a prevalent decreasing interest rate environment, it is expected that Harnischfeger will have to deal with the problem of high interest expense in the future.