Harnischfeger
1. In Note 2 of Harnischfeger’s financial statement, the company included net sales of the construction crane products purchased from Kobe Steel, which was previously only reported in the gross margin. Additionally, financial statements of some foreign subsidiaries were included because their fiscal years ended July 31, 1984. An increase in net sales was reported by $5.4 million. Historically, Harnischfeger reported the depreciation at a principally accelerated rate. In 1984, the depreciation accounting method changed to a linear depreciation which was applied retroactively.
2. Due to the change in depreciation calculations, a net income increase of $11.0 million was reported for 1984. Because depreciation is equivalent to capital cost divided by the economic life of the machinery, if the economic life is increased, the depreciation expense is lowered, thus resulting in a higher net income reported in this financial year. However, in the long run, net profits will decrease as the depreciation expense increases.

3. As a result of Harnischfeger’s linear depreciation policy, the estimated depreciation lives and residual values on machinery and equipment were valued at less than before because it was calculated over a longer period of time. Therefore, the 1984 financial statement reported an increase in net income for 1984 by $3.2 million. If Harnischfeger decides to keep the machines for longer, they are more likely to brake often and require more maintenance. If the price of maintaining the machines increases, this will decrease future reported profits.
4. Harnischfeger experienced financial hardship in 1982 in were in the process of recovering in 1984. The company was closing plants and laying-off employees, hence they did not have sufficient funds to purchase new machines and equipment. Since heavy machinery liquidity is low, Harnischfeger had