Assignment 5
Assignment 5
Universiteit van Amsterdam Business School
Intermediate Financial Accounting 7139
Topic
Case study
Assignment 5
Due date: Friday 12th March 2010
➢ Hand-in via the Digital Dropbox (Blackboard, Tools)
➢ Maximum of 4 students in a group
➢ Make sure that all assignments include names, student numbers and date of lecture
➢ The bonus of five points is earned when five of six assignments received a ‘pass’ grade
➢ To get a pass you need to answer all questions
➢ Copy-paste answers will not be allowed, nor graded
➢ The bonus is not valid for retake exams
Blackboard
Case: Harnischfeger Corporation 1984 Annual Report (abridged)
Answer the following questions.
1. Describe clearly all of the accounting changes Harnischfeger made in 1984
2. What is the effect of the depreciation accounting method change on the reported income 1984? How will this change affect profits in future years?
3. What is the effect of the change in depreciation lives? How will this change affect future reported profits?
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 condition Harnischfeger was facing in its primary industries in 1984, are these economic assumptions justified?
5. In Note 7, Harnischfeger describes the effect of LIFO inventory liquidation on its reported profits in 1984. Describe what you think is meant by LIFO liquidation, and how liquidation affects a company’s income statement and balance sheet.
6. Note 8 indicates Harnischfeger’s allowance for doubtful accounts. Compare the ratio of allowance to gross receivables (receivables before 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 income increase as a result of the changed ratio in 1984?
7. Note 9 indicates that Harnischfeger decreased its R&D expense...