Franklin Ltd., a gift store, reported the following amounts in its 2023 financial statements. The 2022 figures are given for comparison.

Required

1. Determine whether Franklin Ltd.’s acid-test ratio improved or deteriorated from 2022 to 2023. How does Franklin Ltd.’s acid-test ratio compare with the industry average of 0.90?

2. Compare the days’ sales in receivables measure for 2023 with the company’s credit terms of net 30. What action, if any, should Franklin Ltd. take?

3. Indicate the most likely effect of the following changes in credit policy on the days’ sales in receivables (+ for increase, - for decrease, and NE for no effect):

a. Granted credit to people with poor credit history.

b. Increased collection techniques or methods.

c. Granted credit with discounts for early payment.

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Current assets Cash Short-term investments Accounts receivable Less: Allow. for doubtful accts Inventory Prepaid insurance Total current assets Total current liabilities Net sales 2023 $120,000 $ 12,000 46,000 20,000 100,000 384,000 4,000 $ 546,000 $ 218,000 $1,460,000 2022 $148,000 18,000 $ 26,000 22,000 130,000 378,000 4,000 $ 560,000 $ 224,000 $1,464,000