1541 WordsMay 26, 20127 Pages
1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements. Note 2 (pg. 17) states that in 1984 Harnischfeger changed their depreciation method that was being used to expense their plants, machinery and equipment from the direct method to the straight-line method for financial reporting purposes. An adjustment of the residual values on certain machinery and equipment was made. Harnischfeger 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. They also included the financial statements of some foreign subsidiaries. 2. What is the effect of the depreciation accounting method change…show more content…
How much did the pre-tax income increase as a result of the changed ratio in 1984? The allowance would have been $8.5Million if they would have had consistency on the ratio from 2003 in 2004. As a result, the pre-tax income increase is $2.6 Million due to the changed ratio in 1982. In Millions of US$ 1984 1983 AR Net 87.6 63.7 Allowance for Doubtful accounts 5.9 6.4 AR Gross 93.5 70.1 Allowance for Doubtful accounts ratio 6.3% 9.1% 7. Note 9, on page 216, states that Harnischfeger decreased R&D expense in 1984 relative to the previous two years. Do you think this change was motivated by business considerations or accounting considerations? How did this change affect the company’s reported profits in 1984? I believe that this action was motivated by business considerations, since the accounting practices were not the best. In 1984, Harnischfeger´s reported profits during each of the four quarters, ending the year with a pre-tax operating profit of $5.7 million and a net income after tax and extraordinary credits of $15 million. As such, this made profits look positive. Additionally, research and development expense incurred in the development of new products or significant improvements to existing products was $5.1 million in 1984. $12.1 million in 1983 and $14.1 million in 1982. This change

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