Essay on Hernischfeger Corporation Case Analysis

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HERNISCHFEGER CORPORATION CASE ANALYSIS

1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements

In 1984 they changed the depreciation method from accelerated methods to the straight-line for financial reporting purposes. This change included a adjustment of the residual values on certain machinery and equipment. They also included the products purchased from Kobe Steel, LTD and sold by them in their net sales. Moreover, they also included the financial statements of some foreign subsidiaries.

2. What is the effect of the depreciation accounting method change on the reported income in 1984? How will this change affect profits in future years? It increased the
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The change in the return on investment assumption is for all US plans. The economic consequence is that there will be less injection of cash by these pension owners during the lifetime of their pension.
In 1984 the corporation established a new plan, which goal was an improvement in the minimum pension benefit. This constituted in a restructure of the Salaried Employees’ Retirement Plan.

This decision could help the company to rebuild the trust of customers and suppliers for continuing in business. The workers would suffer a significant economic lost and could lose the motivation to work for the company. But there is a possibility that a positive view could emerge because they could appreciate the company’s efforts to keep them working there, and then cooperate to take the company to the next level.

9. How did the pension plan changes affect Harnischfeger’s financial statements in 1984? Are these changes likely to affect future profits?

The effect of the changes in the investment return assumption rates for all U.S. plans, together with the 1984 restructuring of the U.S. Salaried Employees' Plan, was to reduce pension expense by approximately $4.0 million in 1984 and $2.0 million in 1983, and the actuarial present value of accumulated plan benefits by approximately $60.0 million in 1984. This may have an effect on future profits.
The pension plan changes affected positively the statements in 1984. Less assets were available for benefits;

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