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Harnischfeger Corporation

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1. Read the footnotes carefully. Identify four accounting policy changes and accounting estimates that Harnischfeger made during 1984 and estimate as accurately as possible the effect of these changes on the company’s 1984 reported profits? One accounting change that Harnischfeger made was that they were going to include products purchased from Kobe Steel in their net sales. Before November 1, 1983 only the gross margin on Kobe products was included in their net sales. Harnischfeger was also going to include the financial statements of certain foreign subsidiaries were included on the basis of their fiscal years ended July 31 to September 30. Even though there was no significant impact on net income, this did help to increase their…show more content…
Do you believe investors in Harnischfeger will “see through” the company’s accounting changes? I believe that Harnischfeger’s management strategy was a good idea. It provided motivation and showed, through the financial statements, that the company was able to make a profit again. Since the company increased net income this may lead investors to believe that the changes are part of a forward looking business strategy and could increase the company’s stock price . It does seem very suspicious that all of these changes occurred within a year and I think this will raise a lot of questions with their investors. The investors might think that the company is trying too hard to make their financial statements look good by their 100th anniversary. Investors might also find out that a lot of this motivation will come at a large cost, with having the top executive officers have incentive compensation. Investors might also be concerned that the company is decreasing the amount of R&D spending, but still trying to explore different high technology product lines and services. I would have thought with trying to do this they would want to spend more money on R&D. A final thing investors might notice is the extension of deprecation lives for their plants, machinery, and equipment. Although this is being done to increase their net income, this might not be such a smart strategy for the company. 4. Assess the company’s future prospects
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