Week 4: Harnischfeger Inc.
1. Describe clearly all of the accounting changes Harnischfeger made in 1984.
1. There is a change in the depreciation method. They change from accelerated depreciation to straight line method. Because they change for the accelerated depreciation to straight line depreciation the will record lower cost. This will lower the total cost en thereby increase the net profit.
2. The estimated depreciation lives of the assets in U.S. are revalued. In the notes they say that they record a profit by recalculating the depreciation live of the assets.

These two changes are giving me the impression that the managers do this for showing a positive net income.

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?
The change of the depreciation method form accelerated method to a straight-line method will lower the depreciation cost. Thereby they also changed the estimated depreciation live form the asset in U.S.. This could be done for lowering the depreciation cost. Because the way of calculating the straightline depreciation cost depends on the estimeted live of the assets the management could extend the estimaten depreciation live to lower the anually depreciationcost.

3. What is the effect of the change in depreciation lives? How will this change affect future reported profits?
The changes of the estimated depreciationlives wil affect the anually depreciation cost.
The starigth-line depreciation is calculated by the remaning book value of the assets devided by the remaning estimanded live of the assets. By extending the live of the assets the cost will be lower. This will lower the total cost which cause an higher net profit.

4. The depreciation accounting changes assume that Harnischfeger’s plant and machinery will last