Account 325

ACC 613

Chapter 3: Harnischfeger Case

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 companyпÑ--Ð...s 1984 reported profits.

Harnischfeger made the following accounting policy changes and accounting estimates during the year 1984.

пÑ--Ð... 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.

пÑ--Ð... There was a change in the fiscal year for some foreign subsidiaries.

пÑ--Ð... 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.

пÑ--Ð... There was a change in the use of last-in, first-out (LIFO) liquidation in inventory valuation.

пÑ--Ð... 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.

пÑ--Ð... 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.

пÑ--Ð... There was change in employee pension plans. The Salaried Employee Retirement Plan was terminated in 1984 and a new plan was created.

The effect of the accounting policy changes on the companyпÑ--Ð...s 1984 reported profits are as follows:

пÑ--Ð...