Universiteit van Amsterdam Business School
Intermediate Financial Accounting 7139
Due date: Friday 12th March 2010
➢ Hand-in via the Digital Dropbox (Blackboard, Tools)
➢ Maximum of 4 students in a group
➢ Make sure that all assignments include names, student numbers and date of lecture
➢ The bonus of five points is earned when five of six assignments received a ‘pass’ grade
➢ To get a pass you need to answer all questions
➢ Copy-paste answers will not be allowed, nor graded
➢ The bonus is not valid for retake exams
Case: Harnischfeger Corporation 1984 Annual Report (abridged)
Answer the following ...view middle of the document...
Given the business condition Harnischfeger was facing in its primary industries in 1984, are these economic assumptions justified?
5. In Note 7, Harnischfeger describes the effect of LIFO inventory liquidation on its reported profits in 1984. Describe what you think is meant by LIFO liquidation, and how liquidation affects a company’s income statement and balance sheet.
6. Note 8 indicates Harnischfeger’s allowance for doubtful accounts. Compare the ratio of allowance to gross receivables (receivables before allowance) in 1983 and 1984. What would the allowance have been if the company maintained the ratio at the 1983 level? How much did the pre-tax income increase as a result of the changed ratio in 1984?
7. Note 9 indicates that Harnischfeger decreased its R&D expense considerable in 1984 relative to the previous two years. Do you thing this change was motivated by business or accounting considerations? How did this change affect the company’s reported profits in 1984?
8. Summarize all the accounting changes Harnischfeger made in 1984, and their individual effects on pre-tax profits and cash flows in 1984.
9. Accounting statements are used by investors, lenders, customers, employees, and governments in dealing with Harnischfeger. Among these groups, who is most likely to “see through” the above accounting changes, and who is lest likely to do so?
10. Are the accounting changes likely to help or to hinder Harnischfeger’s ability to implement its business plan? Be as specific as possible.
11. Overall, what is your assessment of Harnischfeger’s future as of 1984?