Fill in the drop down with the options: No Change, Increase, or Decrease. And "Check" if the account is affected by the specific transactions.

You've been asked to tutor Gavin, a finance student who doesn't feel comfortable about his understanding of the relationship between a company's business activities, its financial accounts, and the company's financial ratios. To better appreciate these relationships, you've created the following exercises for Gavin to complete. The purpose of these exercises is to help Gavin (1) understand the effect of business transactions on financial statement-such as balance sheet and income statement-accounts and (2) how these changes in the numerators and denominators of financial ratios affect the ratios' values. However, before using these exercises in your tutoring session later today, you'll want to run the calculations on the following two business transactions, to verify the accuracy of your answers To provide a consistent frame of reference for the company's financial statements and ratios, assume that the following balance sheet and income statement reflect the company's pretransaction condition and performance Wellington Industries's Pretransaction Statement of Financial Condition Wellington Industries's Pretransaction Statement of Financial Performance Sales Less: Cost of goods sold1 Gross profit Less: Operating expenses Operating profit (EBIT) Less: Interest expense2 Earnings before taxes (EBT) Less: Tax expense3 Net income $15,000 Accounts payable $20,000 20,000 10,000 50,000 100,000 500,000 600,000 150,000 350,000 900,000 1,400,000 $2,000,000 Cash Marketable securities Accounts receivable Inventory Prepaid expenses $5,000,000 2,000,000 3,000,000 600,000 2,400,000 33,000 2,367,000 828,450 $1,538,550 10,000 Wages payable 470,000 Taxes payable 500,000 Notes payable 5,000 Total current liabilities Total current assets 1,000,000 Long-term debt Total liabilities Gross plant and equipment Accumulated depreciation Net plant and equipment 1,500,000 500,000 1,000,000 Common stock Capital paid in excess of par Retained earnings Total equity Cost of goods sold equals 40% of sales 2|nterest expense equals 6% of the combined notes payable and long-term debt balances 3The average federal and state tax rate is 35% Total assets $2,000,000 Total debt and equity Indicate if any of the listed financial statement accounts is affected by the following business transactions and whether the listed ratios will increase, decrease, or remain unchanged as a result of the transaction. (Hint: Assume that the business transaction occurs exactly as stated without interpreting it further. Do not consider any related transactions that may occur before or after the specified transaction.) Business Transaction 1 Wellington Industries (Wellington) purchases a new piece of equipment for $50,000, using a cash down payment of $5,000 and a note payable for the outstanding balance. Check if the Account Is Affected by the Specified Transaction Financial Ratio Ratio's Behavior Financial Account Accounts payable Cost of goods sold Gross plant and equipment Cash Retained earning:s Notes payable Debt ratio Average collection period Quick ratio Times interest earned Fixed assets turnover Return on common equity Business Transaction 2 A $500,000 10-year bank loan is initiated, and the funds are placed in Wellngton Industries (Wellington)'s checking account. Check if the Account Is Affected by the Specified Transaction Financial Ratio Ratio's Behavior Financial Account Debt ratio Gross profit margin Return on assets Fixed asset turnover Times interest earned Operating profit margin No change Decreases Increases Marketable securities Common stock Cash Long-term debt Gross plant and equipment