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Harnischfeger Corporation

In: Business and Management

Submitted By hanpark
Words 965
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ACCT5910 Business Analysis and Valuation

Summary of Case
This case is talking about Harnischfeger Corporation, leading producer of Construction Equipment, Mining and Electrical Equipment, Material Handling Equipment and Harnischfeger Engineer, based in Milwaukee, Wisconsin.
The main topic of this case is the accounting policy changes after financial difficulties and its effect on financial reporting and the motive of these changes.

Questions
1. Identify all 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 profit.
Harnischfeger made the following accounting policy changes and accounting estimates during the year 1984.
- There was a change in the recognition of some types of sales. This resulted in a change in sales calculation. Harnischfeger incorporated products purchased from Kobe Steel, which were re-sold by the company, into its net sales. This increased aggregate sales and cost of sales by $28 million.
- There was a change in the fiscal year for some foreign subsidiaries.
- There was a change in the depreciation methods on assets. The depreciation policy for financial reporting purposes was changed to a straight-line method from a principally accelerated method.
- There was a change in the use of last-in, first-out (LIFO) liquidation in inventory valuation.
- There was a change in the allowance for doubtful accounts. The company adjusted its allowance for doubtful accounts to 6.7% of sales for 1984 from 10% of sales in 1983.
- There was change in the R&D expenses. Harnischfeger significantly reduced its R&D expenses to $5.1 million in 1984, from 412.1 million in 1983.
- There was change in employee pension plans. The Salaried Employee Retirement Plan was terminated in 1984 and a new plan was created....

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