1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements
a. Harnischfeger registered as a net sale the final sales amount of products bought from Kobe instead of only the gross margin received per unit. It has also taken in consideration the financial statements of some subsidiaries (but not all of them) to increase net sales.
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?
a. In the case of depreciation of some type of assets, Harnischfeger is adjusting its depreciation policy to the straight-line method from accelerated methods, which let the company increased net income as the adjustments are being applied retroactively. This change will increase net income in the coming immediate years, but the depreciation expense will be present for a several more years since the straight-line method is being used.
3. What is the effect of the depreciation lives change? How will this change affect future reported profits?
a. As mentioned before since straight-line method will be used, depreciation expenses will be more realistic. The change will increase profits immediately but reduces them in the following years.
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 conditions Harnischfeger was facing in its primary industries in 1984, are these economic assumptions justified?
a. Yes, I believe it was totally justified since revenues went down to $398,708,000 in 1984 from $447,461,000 in 1982, specially taking in consideration that 1984 revenues include other subsidiaries income that were not part of 1982 financial statements.
5. In Note 7, Harnischfeger describes the effect of LIFO inventory liquidation on its reported profits in 1984. Describe what is...