1. A firm reported numerous one-time gains and losses in each of its last three years of operations. In addition, the firms income tax rate varied from one reporting period to the next. The profit margin that an analyst would focus on to assess earnings quality is the

Gross profit margin

Pretax profit margin

Operating profit margin

Net profit margin

2. An entity might overstate a restructuring expense in the year that the restructuring taxes place to

Maximize its current tax obligation

Minimize its current pretax income

Recognize future gains from the overstated restructuring expense

Ensure a high quality of earnings in the current reporting period

3. Use the following information for this question: Income Statement Balance Sheet Revenue $ 300 Total assets 200 Interest expense 50 Common shareholders equity 60 Pretax income 40 Income tax expense 16 Net income 24

The adjusted return on assets was: 40% 8% 12% 27%

4. Use the following information for this question: Income Statement Balance Sheet Revenue $ 300 Total assets 200 Interest expense 50 Common shareholders equity 60 Pretax income 40 Income tax expense 16 Net income 24

The financial leverage ratio was: .33 1.33 2.33 3.33