Harnischfeger Case Summary
Vishal SachdevApril 19, 2013Harnischfeger Corporation
1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements.
Harnischfeger made two accounting changes from which one made its net sales increase, and the second change made its net income increase.
For the net sales increases, they included sales from certain foreign subsidiaries which increased their net sales. Also, in the past when having sold equipment generated from their supplier Kobe Steel, they only included the gross margin from the sale of Kobe originated equipment, but now they include the net sales products purchased from Kobe and sold by Harnischfeger. This was done mainly to reflect more effectively on the transactions between the corporation and Kobe, since they were now working with a long-term supply agreement which was part of their restructuring plans.
The other change was to use the straight-line method for the computation of depreciation expenses for plants, machinery and equipment. This changed method of computing depreciation made their net income rise by $11 million. 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?
Depending on the useful life of the asset being depreciated, salvage …show more content…
The pre-tax increased by 2.81% (9.12% - 6.31%) 7. Note 9, page 216, states that Harnischfeger decreased R&D expense in 1984 relative to the previous two years. Do you think this change was motivated by business considerations or accounting considerations? How did this change affect the company’s reported profits in
1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements.
Harnischfeger made two accounting changes from which one made its net sales increase, and the second change made its net income increase.
For the net sales increases, they included sales from certain foreign subsidiaries which increased their net sales. Also, in the past when having sold equipment generated from their supplier Kobe Steel, they only included the gross margin from the sale of Kobe originated equipment, but now they include the net sales products purchased from Kobe and sold by Harnischfeger. This was done mainly to reflect more effectively on the transactions between the corporation and Kobe, since they were now working with a long-term supply agreement which was part of their restructuring plans.
The other change was to use the straight-line method for the computation of depreciation expenses for plants, machinery and equipment. This changed method of computing depreciation made their net income rise by $11 million. 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?
Depending on the useful life of the asset being depreciated, salvage …show more content…
The pre-tax increased by 2.81% (9.12% - 6.31%) 7. Note 9, page 216, states that Harnischfeger decreased R&D expense in 1984 relative to the previous two years. Do you think this change was motivated by business considerations or accounting considerations? How did this change affect the company’s reported profits in