Reference no: EM132894208

Problem - Restating Earnings for Litigation Loss - Rock of Ages, Inc., a large North American integrated granite quarrier, manufacturer, and retailer of finished granite memorials, reported a net loss for 2004 of $3.2 million. In 2004, the firm reported a pretax litigation settlement loss of $6.5 million, and management stated that, in its opinion, the litigation settlement loss did not reflect the current year's operations because it was the first year in five years that the firm reported such a loss. (Rock of Ages' exclusion of an item from the calculation of net income is an example of what the financial press calls "reporting pro forma earnings.") Calculate pro forma earnings for 2004 excluding the settlement costs and speculate on management's reasoning as to why it believes that pro forma earnings is a better measure of performance for Rock of Ages. State any assumptions you make in your calculations. Assume a tax rate of 35%.