Name: Runfang Cao
Student ID: 917470511 Summery NO.2
Case: Harnischfeger Corporation
There are five changes in accounting policies or accounting estimates which were made by Harnischfeger that are listed as followed and if it is legitimate and if it is necessary to make theses changes:
1. Changing in Sales Calculation. The company entered into a long-term agreement with Kobe Steel, Ltd, that Kobe agree to supply Harnischfeger’s requirements for construction cranes for sale in USA as Harnischfeger phased out its own manufacture to reduce the manufacture costs and enable it to compete effectively in domestic market. They changed the sales calculation that net sales include the full sales price of construction and mining equipment purchased from Kobe leaded sales aggregated $28.0 million.
I think it is legitimate and necessary, because it can let the company to reduce the cost to survive. It can increase the quality of earning.
2. LIFO Inventory Liquidation. Reduction of certain LIFO inventories increased gross profits by $15.6 million in 1983 and $7.2 million in 1982.
I think it is legitimate and necessary because it can decrease the operating cost and increase the net income through decreasing the level of inventory.
3. Changing in Pension Plan. To deal with the short-term liquidity squeeze, the company initiated a number of cost reduction measures: reducing the workforce; eliminating management bonuses and reducing of benefits and freezing wages of salaried and hourly employees; liquidating excess inventories and stretching payments to creditors; permanent closure of the
