Question

When is the alternative approach to computing earnings per share (EPS) for business combinations required?

A. When the parent company acquires a subsidiary in a business combination that is accounted for as a purchase.
B. When the parent company acquires a subsidiary in a business combination that is accounted for as a pooling of interests.
C. When the parent company acquires a subsidiary in a business combination that is accounted for as a fair value pooling.
D. When the parent company acquires a subsidiary in a business combination that is accounted for as a good-will write-off.

Answer 1

The alternative method for computing EPS is required for business combinations accounted for as a purchase, which is answer A.

Step-by-step explanation:

The alternative approach to computing earnings per share (EPS) for business combinations is required when the parent company acquires a subsidiary in a business combination that is accounted for as a purchase. So the correct answer is A. This accounting treatment is distinguished from other types of business combinations, such as the pooling of interests method, which is no longer accepted under Generally Accepted Accounting Principles (GAAP). When using the purchase method, the acquirer must record the acquired assets and liabilities at their fair values at the acquisition date, which may result in recognizing goodwill. The EPS calculation must consider these adjustments to reflect the impact of the acquisition on the net income attributable to the parent company's shareholders.