Jennifer Diaz
ACG6175
Harnischfeger Corp: Case Study 2

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

As stated in Note 2 of its financial statements, the accounting changes Harnischfeger made in 1984 are those of net sales of the products that were purchased from Kobe Steel which were then sold by Harnischfeger which added on to the net sales of the company. Harnischfeger included financial statements of certain foreign subsidiaries. Its effect would result in sales which totaled to $28.0 million in 1984. In addition, because Harnischfeger would go on to changed its method of depreciation to a more accelerated version, which would be a straight line method, their net income for 1984 went up by $11.0 million. Furthermore, the company went on to increase and change the depreciation life on US plant, and residual value on machinery, which in essence resulted their equipment increase in net income by $3.2 million in 1984.

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?

The effect Harnischfeger experiences by using the depreciation accounting method change resulted an income increase by $11.0 million. Because of this method change, the company’s net income in 1984 summed up to $15.2 million. As a result of changed their accounting depreciation method, it will affect its profits in future years because the depreciation expense will increase in the future years under the straight line method. Also, expenses will continue to depreciate in the same amount of time with their remaining assets.

3. What is the effect of the depreciation lives change? How will this change affect future reported profits?

The effect of the lives change in depreciation would result in an