Harnischfeger Case

1267 WordsDec 21, 20116 Pages
Overview For this assignment, purchase and read the case file “Harnischfeger Corp.” You can purchase the reading from Harvard Business Publishing Web site. After reading the case, answer the questions on page three of this document. Submit your assignment by the end of Week 2. Rubric Use this rubric to guide your work. |Tasks |Accomplished |Proficient |Needs Improvement |Not Acceptable | |Assignment |Insightful response |Reasonable response |Response demonstrates some |Superficial response | |(5 points) |demonstrates ample evidence |demonstrates evidence of |evidence of having read the |demonstrates no…show more content…
4. The depreciation accounting changes assume that Harnischfeger’s plant and machinery will last longer and will lose their value more slowly. Given the business conditions Harnischfeger was facing in its primary industries in 1984, are these economic assumptions justified? Yes it was justified since revenues went down to $398,708 in 1984 from $447,461 in 1982. Which means that they were using less their machinery which causes less wear and tear to the machinery justifying an increase on the useful life 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. When using the LIFO method, if sales are higer than current purchases inventory not sold may be liquidated. This is called LIFO liquidation. The effect of the LIFO liquidation on the Harnischfeger’s income statement is an increase in net income by $2.4 million or $.20 in fiscal year 1984. There is no income tax effect. On the balance sheet there is a decrease of inventory, due to liquidation. 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

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