To provide a consistent frame of reference for the company’sfinancial statements and ratios, assume that the following balancesheet and income statement reflect the company’s pre-transactioncondition and performance.

Phoenix Golf Club Co.’s Pre transaction Statement of FinancialCondition

Cash	$15,000	Accounts payable	$20,000
Marketable securities	10,000	Wages payable	20,000
Accounts receivable	470,000	Taxes payable	10,000
Inventory	500,000	Notes payable	50,000
Prepaid expenses	5,000	Total current liabilities	100,000
Total current assets	1,000,000	Long-term debt	500,000
		Total liabilities	600,000
Gross plant and equipment	1,500,000	Common stock	150,000
Accumulated depreciation	500,000	Capital paid in excess of par	350,000
Net plant and equipment	1,000,000	Retained earnings	900,000
		Total equity	1,400,000
Total assets	$2,000,000	Total debt and equity	$2,000,000

Phoenix Golf Club Co.’s Pre transaction Statement of FinancialPerformance
Sales	$5,000,000
Less: Cost of goods sold¹	2,000,000
Gross profit	3,000,000
Less: Operating expenses	600,000
Operating profit (EBIT)	2,400,000
Less: Interest expense²	33,000
Earnings before taxes (EBT)	2,367,000
Less: Tax expense³	828,450
Net income	$1,538,550

¹Cost of goods sold equals 40% of sales.

²Interest expense equals 6% of the combined notes payable andlong-term debt balances.

³The average federal and state tax rate is 35%.

Indicate if any of the listed financial statement accounts isaffected by the following business transactions and whether thelisted ratios will increase, decrease, or remain unchanged as aresult of the transaction. (Hint: Assume that the businesstransaction occurs exactly as stated without interpreting itfurther. Do not consider any related transactions that may occurbefore or after the specified transaction. Assume there are 365days in a year.)

Business Transaction 1

Phoenix Golf Club Co. (PGC) sells 25,000 shares of new commonstock ($1 per share par value) to new and existing shareholders for$20 per share.

Financial Account	Check if the Account Is Affected by the SpecifiedTransaction
Cash
Operating income
Long-term debt
Common stock
Capital paid-in excess of par

Financial Ratio	Ratio’s Behavior
Inventory turnover
Debt ratio
Times interest earned	 Â
Operating profit margin
Basic earnings power
Current ratio

Business Transaction 2

Phoenix Golf Club Co. (PGC) switches from holding an availableinventory to a just-in-time inventory system, thereby reducing itsinventory by 80.00%.

Financial Account	Check if the Account Is Affected by the SpecifiedTransaction
Inventory
Accounts payable
Prepaid expenses
Total assets
Common stock

Financial Ratio	Ratio’s Behavior
Average collection period	 Â
Inventory turnover	 Â
Fixed assets turnover
Quick ratio	 Â
Return on assets
Debt ratio