Measuring Sustainable Earnings Harnischfeger Corporation was a mining machinery and equipment company based in Wisconsin. The company voluntarily changed its depreciation accounting policy from the accelerated method to the straight-line method. It disclosed the cumulative effect of this accounting policy change, equal to $11.005 million (net of applicable income taxes), in its financial statements. In addition, the company also voluntarily changed the estimated useful lives of certain of its U.S. plant and equipment. This estimate change increased its pretax reported profit by $3.2 million.

The following are selected excerpts from the company’s financial statements: (in thousands)

Income before income taxes, equity items, and the cumulative effect of accounting method change $5,738

Provision for income taxes (2,425)

Income after taxes 3,313

Equity items 858 Cumulative effects of change in depreciation method 11,005

Net income $15,176

(a) Calculate Harnischfeger’s sustainable earnings. Round tax rate to the nearest whole percentage for your calculation. (Example, 0.34567 = 35%) Round your answer to the nearest thousand dollar.

Answer rating: 100% (QA)

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