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Week 3 case study: Harnischfeger Corporation

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 retroactively changed its depreciation method from accelerated to straight-line for all depreciable assets. The cumulative effect of this accounting policy change, which not including the reduction in the current year’s depreciation expense, increased after-tax net income for 1984. * Harnischfeger changed its estimated depreciation lives on certain U.S. plants, machinery, and equipment and residual values on certain machinery and equipment. This change increased
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The company’s business strategy seems to be sound. The management recognized the potential to exploit the company’s strength in the material handling equipment business. This strategy is likely to help the company to move away from the mining and construction equipment business, which is a low-growth and cyclical industry, to a higher-growth and more stable business.

As a result, although the company’s changes in accounting policy were not easily to be understood by average investors, the company has shrewd accounting, operating, financing and investing moves made by senior management. So I guess the company would witness positive improvement in the

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