Question 8 (15 marks) Franco Furniture (FF) is a mid-sized owner-operated business that was created 25 years ago by Fred

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Question 8 (15 marks)
Franco Furniture (FF) is a mid-sized owner-operated business
that was created 25 years ago by Fred Franco. The retail
furniture business is cyclical, with business dropping off in times
of economic downturn, as is the case currently. To encourage
sales, the store offers its credit cards to good customers. FF has
run into a bit of a cash crunch and is planning to go to the bank
to obtain an increase in its line of credit to replenish and expand
the furniture stock. At present, the line of credit is
limited to 70% of the credit card receivables and inventory.
The receivables and inventory have been pledged as security for the
loan.
Fred has identified two possible sources of the cash shortage:
outstanding credit card receivables and a buildup in old
inventory. He has come up with two strategies to deal with
the problem.
Instructions
Assume the role of FF’s Controller and advise Fred about the
impact of the strategies on the company’s financial
reporting. FF follows ASPE. Provide the report using
the following headings:
Please answer all parts.