SFAS No. 115 prescribes the accounting treatment for investmenequity securities having readily determined fair values for which the equity method and consolidation do not apply. IAS No. 39 prescribes international accounting practice for similar securities. A. Compare and contrast U.S. GAAP for investments in equity securities under SFAS No. 115 with the provisions of IAS No. 30. B. Discusss whether U.S. GAAP under SFAS No. 115 or the requirements of IAS No. 25 are more consistent with the following concepts: i. Conservatism ii. Comparability iii. Relevance iv. Neutrality v. Representational faithfulness vi. Physical capital maintenance

Case 10-8 Equity Securities: GAAP versus IASB Standards SFAS No. 115 prescribes the accounting treatment for investments in equity securities having readily determined fair values for which the equity method and consolidation do not apply. IAS No. 25 prescribes international accounting practice for similar securities. Required: a. Compare and contrast U.S. GAAP for investments in equity securities under SFAS No. 115 with the provisions of IAS No. 25. b. Discuss whether U.S. GAAP under SFAS No. 115 or the requirements of IAS No. 25 are more consistent wiv. Neutrality v. Representational faithfulness vi. Physical capital maintenance ith the following concepts: i. Conservatism ii. Comparability iii. Relevance 14-4. (Financial forecasting- percent of sales) Tulley Appliances Inc. projects-ANSWER KEY 14-4. (Financial forecasting- percent of sales) Tulley Appliances Inc. projects next year’s sales to be $20 million. Current sales are $15 million, based on current assets of $5 million and fixed assets of $5 million. The firm’s net profit margin is 5 percent after taxes. Tulley forecasts that its current assets will rise in direct proportion to the increase in sales, but that its fixed assets will increase by only $100,000. Tulley has $1.5 million in accounts payable (which vary directly with sales), $2 million in long-term debt (due in 10 years), and common equity (including $4 million in retained earnings) totaling $6.5 million. Tulley plans to pay $500,000 in common stock dividends next year. a). What are Tulley’s total financial needs (i.e., total assets) for the coming year? b). Given the firms projections, and dividend payments plans, what are its discretionary financing needs? c). Based on your projections, and assuming that the $100,000 expansion in fixed assets will occur, what is the largest increase in sales the firm can support without having to resort to the use of discretionary sources of financing? 15-3. (Cost of trade credit) Calculate the effective cost of the following trade credit terms when payment is made on the net due date. a. 2/10, net 30 b. 3/15, net 30 c. 3/15, net 45 d. 2/15, net 60

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