1. Patton Corporation had the following items on its financial statements for Years 1 and 2:

Financial Statement Item	Year 2		Year 1
Revenue	$2,500,000		$2,000,000
Net income	800,000		600,000
Interest expense	9,500		9,000
Income tax expense	320,000		240,000
Current assets	50,000		30,000
Machinery, net	10,000		10,000
Buildings, net	90,000		90,000
Total assets	150,000		140,000
Current liabilities	40,000		30,000
Noncurrent liabilities	50,000		45,000
Total liabilities	90,000		75,000
Total stockholders' equity	110,000		65,000
Tax rate	40%		40%

Patton's rate earned on stockholders' equity for Year 2 is

a. 8.7%.

b. 9.5%.

c. 9.1%.

d. None of these choices are correct.

c

2. Patton Corporation had the following items on its financial statements for Years 1 and 2:

Financial Statement Item	Year 2		Year 1
Revenue	$2,500,000		$2,000,000
Net income	800,000		600,000
Interest expense	9,500		9,000
Income tax expense	320,000		240,000
Current assets	50,000		30,000
Machinery, net	10,000		10,000
Buildings, net	90,000		90,000
Total assets	150,000		140,000
Current liabilities	40,000		30,000
Noncurrent liabilities	50,000		45,000
Total liabilities	90,000		75,000
Total stockholders' equity	110,000		65,000
Tax rate	40%		40%

Patton's rate earned on total assets for Year 2 is

a. 5.58%.

b. 4.9%.

c. 6%.

d. None of these choices are correct.

?

3. __________ measures the share of profits that are earned by a share of common stock.

a. Earnings per share (EPS)

b. Price-earnings (P/E) ratio

c. Rate earned on stockholders' equity

d. None of these choices are correct.

?

4. In addition to the financial statements and the accompanying notes, corporate annual reports normally include which of the following?

Management Discussion and Analysis

Report on Internal Control

Report on Fairness of the Financial Statements

All of these choices are correct.

?

5. Typical items included in the MD&A would include all the following except

management's analysis and explanations of any significant changes between the current and prior years' financial statements.

important accounting principles or policies that could affect interpretation of the financial statements, including the effect of changes in accounting principles or the adoption of new accounting principles.

management's assessment of the company's liquidity and the availability of capital to the company.

a worksheet.

?

6. An extraordinary item is defined as an event or transaction that is

unusual in nature.

infrequent in occurrence.

both unusual in nature and infrequent in occurrence.

None of these choices are correct.

?

7. Generally accepted accounting principles require that unusual items

be reported within operating income on the income statement.

be reported separately on the income statement.

not be reported on the income statement.

None of these choices are correct.