Preview

Harnischfeger Case

Better Essays
Open Document
Open Document
1476 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Harnischfeger Case
Harnischfeger Corp case study
1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements. Note 2 (pg. 17) states that in 1984 Harnischfeger changed their depreciation method that was being used to expense their plants, machinery and equipment from the direct method to the straight-line method for financial reporting purposes. An adjustment of the residual values on certain machinery and equipment was made. Harnischfeger also included the products purchased from Kobe Steel, LTD and sold by them in their net sales instead of stating only the gross margin per unit. They also included the financial statements of some foreign subsidiaries.
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?
Harnischfeger is adjusting its depreciation policy to the straight-line method from accelerated method they were using previously, which let the company increase net income as the adjustments are being applied retroactively. This change increased the net income to 11 million for 1984. Furthermore, this change will decrease profit in future years, because with the accelerated method, in the future years the depreciation expense would have been lower, and with the straight line they will continue to depreciate in the same amount for the life of the asset.This change will decrease profit going forward, because with the accelerated method the depreciation expense would have been lower as opposed to the straight line method they will continue to depreciate in the same amount for the remaining life of the asset.
3. What is the effect of the depreciation lives change? How will this change affect future reported profits? Assuming that a straight-line method will be used, depreciation expenses will be more realistic. The change will increase profits by $3.2 million or $.27 per share, but reduces them in future profits to

You May Also Find These Documents Helpful

  • Good Essays

    Ad Ad Ad Blockbuster

    • 464 Words
    • 2 Pages

    Because of the change method of the depreciation from a straight line to the accelerated, therefore, there is recognition of a more depreciation expense up front and there is no decrease that is experienced. There is also a decrease in the ESP ratio.…

    • 464 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

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

    • 1524 Words
    • 7 Pages
    Powerful Essays
  • Satisfactory Essays

    5. An entity changes its depreciation method for production equipment from straight-line to a units-of-production method based on hours of…

    • 395 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    MR Jung

    • 355 Words
    • 3 Pages

    discretion in reporting – that way I get uniform numbers across all companies and don’t…

    • 355 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Harnischfeger Corporation

    • 4382 Words
    • 18 Pages

    This case is a by-product of my field research, which is described in the paper, "The Anatomy of an Accounting Change." This paper is published in Accounting and Management: A Field Study Perspective, edited by William Bruns and Robert Kaplan (Harvard Business School Press, 1987).…

    • 4382 Words
    • 18 Pages
    Powerful Essays
  • Satisfactory Essays

    The estimated life is changed to 2018, hence the depreciation rate now becomes – 12.5% (estimated life 8 years) with…

    • 391 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    When it comes to computing depreciation, there are three factors that determine the depreciation expense for a fixed asset: the asset’s initial cost, expected useful life, and estimated residual value. And there are also three different ways to calculate depreciation: the straight –line method, the units-of-production method, and the double-declining-balance method. The straight-line method of depreciation provides the same amount of depreciation expense for each year of the asset’s useful life, and is known to be the most commonly used method of calculating depreciation. The unit’s-of-production method of depreciation provides the same amount of depreciation expense for each unit of production. Based on what the asset is, the unit’s-of-production method can be expressed in terms of quantity produced, miles, hours, etc. and is often used when the fixed assets in service time or use varies from year to year. The double-declining-balance method of depreciation provides for a declining periodic expense over the expected useful life of the asset. The double-declining-balance method shows a higher depreciation in the…

    • 659 Words
    • 3 Pages
    Good Essays
  • Good Essays

    In this case, when Rob recorded the depreciation of computer equipment, he chose the straight-line method, acceptably so because the computer server’s output cannot be counted by unit. We also cannot determine that there is a higher amount of depreciation expense in the early years than in the later years. In addition, based on my research, some big companies like eBay and Amazon also use the straight-line method to record the depreciation expense of computer servers. In regards to this, I unfortunately did observe a problem.…

    • 741 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Billabong

    • 523 Words
    • 3 Pages

    Land has not been depreciated. Building, plant and equipment and furniture, fittings and equipment have been depreciated using the straight-line method. This method has been used to allocate the assets’ cost net of their residual values and over the period of their estimated useful lives.…

    • 523 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Finance Notes

    • 3249 Words
    • 13 Pages

    What is the value of American Rayon, if MRC takes it over and improves the company as follows: sales after 1963 don't fall but remain at a level of $ 55 m "forever,, and other value drivers such as margins, tax tates, WCR/sales ratios, as well as capex and depreciation remain the same until 1967. Afterwards, the company will have to invesi un u-ount of $ 3m equal to…

    • 3249 Words
    • 13 Pages
    Good Essays
  • Better Essays

    P and H Study Case

    • 1212 Words
    • 5 Pages

    1. Identify all the 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 profits.…

    • 1212 Words
    • 5 Pages
    Better Essays
  • Powerful Essays

    Financial Restatement

    • 608 Words
    • 3 Pages

    According to the textbook there are three different types of accounting changes which are: change in accounting principle, change in accounting estimate, and change in reporting entity; the textbook also states that there is a fourth category that necessitates changes in accounting even though it is not actually classified as an accounting change. This fourth category, errors in financial statements, is the change being discussed in this paper.…

    • 608 Words
    • 3 Pages
    Powerful Essays
  • Good Essays

    Description b 21. Accounting changes and consistency concept. b 22. Identify changes in accounting principle. c 23.…

    • 10747 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    D2: A variety of depreciation methods are used to allocate the cost of an asset to all of the accounting periods benefited by the use of the asset. Your client has just purchased a piece of equipm...…

    • 665 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Zynga

    • 579 Words
    • 3 Pages

    By a 3-year straight-line depreciation method, the revised R&D cost is calculated by 1/3*Rt+1/3*Rt-1 + 1/3*Rt-2…

    • 579 Words
    • 3 Pages
    Satisfactory Essays

Related Topics