Harnischfeger Case

jumped from $7.4 million to $136.9 million. Reported earnings also leaped; from $.34 per share in 1986 to

Even though Mr. Fordham mentions that he in his “Statement of Cost of Goods Manufactured for Year Ended Dec. 31 1956” that he depreciated $24,000 of Plant and Equipment, I decided to change the depreciation schedule so that PP&E would be fully depreciated by the end of the 5 year period. Thus, I used a straight-line depreciation schedule that accumulated $40,000 worth of depreciation per year, which was spread evenly across the 12 months of this Balance Sheet (or $3,333.33 per month).

With the high probability of uncollectibility on notes receivable due to the majority of operating losses of the area developers, creating an allowance for loan losses would more accurately reflect the financial position of Boston Chicken. Even with just a 25% allowance for uncollectibility the company would be operating at a

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

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.

Yes it was justified since revenues went down to $398,708 in 1984 from $447,461 in 1982. Which means that they were using less their machinery which causes less wear and tear to the machinery justifying an increase on the useful life of the asset.

The CFO was higher than net income in 1989 and 1990. In 1991, the CFO is lower than net income due to a considerable increase in payments for income tax and suppliers and employees.

10. Summarize all the accounting changes Harnischfeger made in 1984 and their effects on pre-tax profits and cash flows in 1984. Below are the changes that were made in 1984: Change in Sales recognition strategy with Kobe Steel - No net effect on pre-tax profits and cash flows in 1984; Change in reporting period for certain foreign subsidiaries - No net effect on pre-tax profits and cash flows in 1984; Change in Pension plan - Increased pre-tax profits and cash flows in 1984; Change in bad debt allowance ratio - Increased pre-tax profits and cash flows in 1984; Reduction in R&D expenses -

Reduced inventory by 1.8 million pair. Based on the COGS of 45%, this could mean a reduction in inventory of close to $10M.

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.

From 1976 to 1982 the compound annual growth in net sales was 18.5% and the compound annual growth of after tax profit was 25.9%. Therefore, a 10% net sales growth shown in the proforma financial data seems reasonable.

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

Historic cost depreciation is being used which leads to skewed numbers that misrepresent how well a product line will continue to operate in the future due to understated replacement value of fixed assets.

Generally speaking, the shorter of the A/R turnover in days, the better efficiency of current capital. But the data of this firm is higher than the industry average level, it indicates there is an inefficient use of current capital and a problem of management, especially in 2001.But it started dropping dramatically in 2002 which reflects an obviously improvement of management.

Net income totaled $97.8 million in 1984, an increase of 5% from 1983.when looking at the Consolidated Balance Sheet (Exhibit2), we found that the total assets grew 15% to $2.7 billion at the end of fiscal 1984 due to addition of real estate inventories as part of the acquisition of another company. The ratio of debt to total capitalization jumped to 43% at 1984 from 20% at previous year.