Read the “Harnischfeger Corp” case study and answer the following questions. Submit your completed assignment no later than the last day of Week 2.
1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements.
• Based on the financial statements in 1984 Harnischfeger made changes from the previous year, the corporation computed depreciation expenses on plants, machinery and equipment using the straight-line method. Prior to the accounting changes in 1984, the company had experienced some financial losses was able to recover. There has been a change in depreciation accounting when it comes to profit. Before they used to apply the accelerated methods for the operating …show more content…
• This was motivated by accounting considerations because they had made other changes to have a positive effect on reported net income. I think they felt that the importance of making their corporation look good on the books was more important than making decisions that would ensure sustainability in the future.
8. Note 11 describe a number of changes in Harnischfeger’s pension plans in 1984. Describe these changes as clearly as you can. What are the economic consequences of these changes to Harnischfeger and its workers?
• 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. The economic consequence is that there will be less insertion of cash by these pension owners during the lifetime of their pension.
9. How did the pension plan changes affect Harnischfeger’s financial statements in 1984? Are these changes likely to affect future profits?
Change of Depreciation Method +$11M
Change in useful life’s or residual values +$3.2M
Reduces pension expense +$4.0M
LIFO liquidation +$2.4M
Bad debt reserve +$2.1M
R&D Expense +$7.0M