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
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How much did the pre-tax income increase as a result of the changed ratio in 1984?
The allowance would have been $8.5Million if they would have had consistency on the ratio from 2003 in 2004. As a result, the pre-tax income increase is $2.6 Million due to the changed ratio in 1982.
In Millions of US$ 1984 1983
AR Net 87.6 63.7
Allowance for Doubtful accounts 5.9 6.4
AR Gross 93.5 70.1
Allowance for Doubtful accounts ratio 6.3% 9.1%
7. Note 9, on 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 1984?
I believe that this action was motivated by business considerations, since the accounting practices were not the best. In 1984, Harnischfeger´s reported profits during each of the four quarters, ending the year with a pre-tax operating profit of $5.7 million and a net income after tax and extraordinary credits of $15 million. As such, this made profits look positive.
Additionally, research and development expense incurred in the development of new products or significant improvements to existing products was $5.1 million in 1984. $12.1 million in 1983 and $14.1 million in 1982. This change
Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements.
Haefren Baum is an independent home furnishings retailer associated with Wiegandt that sells high quality furniture. The company began as a partnership in 1965. Haefren Baum became a retailer for Wiegandt in 1968. Two years later, it became a corporate entity. Haefren Baum is located in Cologne, which is one of the most populated and rich cities in Germany. Haefren retails home furnishing from a location downtown Cologne, and three recently constructed stores in Rhineland.
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?
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.
Cost – HD’s cost of goods sold has increased from 1991 to 1995 due to expansion of production. Similarly, the cost of selling, admin and engineering has also increased.
1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements. In the 1984 the corporation computed depreciation expense on plants, machinery and equipment by using the straight-line method for financial reporting purposes. These changes were made to provide a more equitable allocation of the cost of the plants.
The government contributed to this gap. The federal income taxes were reduced dramatically by the Revenue
What is the impact of the December 1993 shipments of conventional lenses to Bausch and Lomb 1993 financial statements? Is the impact significant?
2. Considering your answer to item 1, the first three exhibits, and related introductory discussion, is it likely that the accounting system may distort product profit significantly? Why? (Ignore general, selling, and admin expense.)
Note 9 indicates that Harnischfeger decreased its R&D expense considerably 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 1984?
For years 1983-1985, additional corporate assessment expense was given. This would lower Polymold’s earnings on their income statement. Another piece of data that was given is research and development expense. Without the CAD/CAM investment, research and development expense is $130,000. This is double to $260,000 without the CAD/CAM investment. This would lower earnings. We are also given the savings that the investment would yield. Without the CAD/CAM investment, there would still be savings – but not as much as with the CAD/CAM investment, which is due to the depreciation of the equipment and tax credits.
Answer: Comparing the direct labor and overhead costs from 1988 and 1989 the actual savings were 270% (as detailed in Table 1)
Another material difference is deferred income tax assets that went from $483,000 to $19,094,000. Totaling a significant difference of $18,611,000.
First of all, the marginal tax cut was one of the most significant policy in the governing of President Reagan. Starting from 1981, government reduced individual tax (the top tax rate was reduced from 70% to 50 %) and Windfall profit tax. As the Tax reform act of 1986 published, the tax rate of wealthiest Americans was decline to 28 % and corporation tax was decreased to 34%.” In addition, as marginal tax rate for wealthy people decreasing, personal exemption amount increased from $1,080 to $2,000. That means,