1. Describe clearly all of the accounting changes Harnischfeger made in 1984.

-In 1984, there was a switch from accelerated to straight line depreciation retroactively. Because of this, the depreciation expense decreased.
-The estimated depreciation lives on certain U.S. plants, machinery and equipment changed. The economic life of these assets was increased, so the depreciation expense was lowered.
-There was an improvement in the minimum pension benefit. This change produced a lower pension expense.
-The was a liquidation of LIFO inventory quantities carried at lower cost compared with the current cost of their acquisitions. Because of this, COGS decreased.
-The accounts receivable were net of allowances for doubtful accounts
$12.1 million in 1983 and $14.1 million in 1982. This change affected the company’s report profits by 7 million from 1984 to 1983 and by 9 million from 1984 to 1982.

7. Note 11 describes a number of changes in Harnischfeger’s pension plans in 1984.
Describe these changes as clearly as you can. What are the economic consequences of these changes to Harnischfeger and its workers?

-The change in the return on investment assumption is for all US plans. The economic consequence is that there will be less injection of cash by these pension owners during the lifetime of their pension.
-In 1984 the corporation established a new plan, which goal was an improvement in the minimum pension benefit. This constituted in a restructure of the Salaried Employees Retirement Plan.

8. How did the pension plan changes affect Harnischfeger’s financial statements in 1984? Are these changes likely to affect future profits?

The effect of the changes in the investment return assumption rates for all U.S. plans, together with the 1984 restructuring of the U.S. Salaries Employees Plan, was to reduce pension expense by approximately $4.0 million in 1984 and $2.0 million in 1983, and the actuarial present value of accumulated plan benefits by approximately $60.0 million in 1984. This may have an effect on future profits.

9. Summarize all the accounting changes Harnischfeger made in 1984 and their effects on pre-tax profits and cash flows in 1984.
Change of depreciation