You've been asked to tutor Ashley, a finance student who doesn't feel comfortable about her 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 Ashley to complete. The purpose of these exerdses is to help Ashley (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. Fresno Furniture Manufacturing Inc.'s Pretransaction Statement of Financial Condition Cash Marloetable securities Accounts receivable Inventory $15,000 10,000 470,000 500,000 5,000 Accounts payable Wages payable Taxes payable Notes payable Total current abilities Long-term debt Totalbes Common stock Capital paid in excess of par $20,000 20,000 10,000 50,000 100,000 500,000 $600,000 $150,000 Prepaid expenses Total current assets ctory $1,000,000 Cross plant and equipment Acumulated depreciation Net blant and equipment $1,500,000 500,000 $1,000,000 350,000 900,000 Itined eaming $1,400,000 $2.000.000 Total assets $2,000,000 Total debt and equity Fresno Furniture Manufacturing Inc.'s Pretransaction Statement of Financial Performance $5,000,000 Sales Less: Cost of goods sold' Gross profit Less: Operating expenses Operating profit (EBIT) Less: Interest expense? Earnings before taves (EBT) Less: Tux expense Net Income 2,000,000 $3,000,000 600,000 $2,400,000 33,000 $2,367,000 828,450 $1,538,550 Cost of goods sold equals 40% of sales. interest expense equals 6% of the combined notes payable and long-term debt balances. The average federal and state tax rate is 35% Indicate if any of the sted 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 cours 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 Fresno Furniture Manufacturing Inc. (PPM) 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. Financial Account Check if the Account Is Allected by the Specified Transaction Notes payable Cost of goods sold Retained caming DOO Gross plant and equipment Accounts payable uctory Ratio's Behavior Financial Ratio Dette Quickie Return on common equity Average collection period Fats turnover Business Transaction 2 Fresno Fumlture Manufacturing Inc. (FFM) switches from holding an available Inventory to a just-in-time Inventory system, thereby reducing its inventory to 80.00% Financial Account Check if the Account Is Affected by the Specified Transaction Inventory Accounts payable Totalt Prepaid expenses Commen we Ratio's Behavior Financial Ratio Quick ratio Inventory tumover Debratio Saturn on