Harnischfeger Case Essay

1208 Words Oct 25th, 2014 5 Pages
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
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• These economic adjustments are justified. If the corporation were experiencing a decline in sales this would also mean that they were using machinery less. Therefore, causing much less wear and tear damages to the machinery, which would definitely justify why the increase in the useful life expectancy of the asset.
5. 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 company’s income statement and balance sheet.
• A situation in which a company using LIFO accounting sells its oldest inventory. LIFO liquidation happens when the company's sales outpace its purchases for inventory. By using the LIFO inventory method this will the older you have to go back, the higher the net income. Inventory is always reported on the balance sheet. As you liquidate older inventory with the LIFO method you decrease your cost of good sold which will increase profitability.
6. Note 8 states Harnischfeger’s allowance for doubtful accounts. Compute the ratio of the allowance to gross receivables (receivables before the allowance) in 1983 and 1984. What would the allowance have been if the company maintained the ratio at the 1983 level? How much did the pre-tax income increase as a result of the changed ratio in 1984?
• The allowance would have been $8,531,577.60 if they

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