1.Identify all the accounting policy changes and accounting estimates that Harnischfeger made during 1984. Estimate as accurately as possible, the effect of these on the company’s 1984 reported profits.

-Included the net sales of products purchased from Kobe Steel Ltd. And sold by the corporation- Previously only the gross margin on Kobe- originated equipment was included. This caused sales to aggregate by $28 million in 1984, increasing net profit.
-Included foreign subsidiaries on the basis of fiscal year end- Increased net sales by $5.4 million.
-Straight line method on depreciation of Plants, Equipment and Machinery- Previously used accelerating method. This increased the net income by 11.30 million.
-Increased the estimation of estimated lives of US plant and Machinery and Equipment and increased estimation of residual values on machinery and equipment- This caused the increased net income by $3.2 million.
- Inventory reductions resulted in liquidation of LIFO inventory quantities to be carried at lower of cost compared with the current cost- This increased the net income by $2.4 million
- Net interest expense in 1984 increased by $2.9 million due to higher interest rates on outstanding funded debt and a reduction in interest income.
- Included unconsolidated financial subsidiary, Harnischfeger Credit Corporation- income tax benefit of $1.4 million was recorded, increasing net profit.
- Research and Development expense was now funded by Kobe Steel Ltd- this reduced the product, development selling and administrative expense.

2. What do you think are the motives of Harhischfeger’s management in making changes to its financial reporting policies? DO you think the investors will see thorough these policies?

The management has incentives to increase the net profit of the company. This is because, according to the 1985 Executive Incentive Plan, they will provide an incentive compensation opportunity of 40% of annual salary to 11 senior executives only if the Corporation reaches a specific net after-tax profit objective. It even provides additional incentive compensation of up to 40 % of annual salary for seven of those officers if the Corporation exceeds the objective.
They would also show positive growth and attract investors if they manage to