1. Suppose that four companies, Alpha, Beta, Gama, and Delta, own the shares of the Epsilon company. Alfa owns 49% of the common shares of Épsilon. Beta, Gamut and Delta have 17% each. The Épsilon board of directors consists of officers from Beta, Gama, and Delta and has no officers from Alpha. This board establishes the administrative and financial policies of Épsilon without taking into account the opinion of Alfa officials. How should Alpha account for its investment in Epsilon?

a. Since Alfa owns 49% of the shares and the others only 17% each, Alfa will have to consolidate its financial statements with those of Epsilon.

b. Since Alfa owns enough shares to have significant influence over Epsilon, it will need to apply the economic method to the investment.

c. The situation, as described, is evidence that Alfa does not have the capacity to exert significant influence over Epsilon, so it should not apply the economic method.

d. There is not enough information to answer the question.

2. A company owns an investment in common stocks that gives it the ability to exert significant influence over the company in which it invested. The company wishes to exercise the fair value option with respect to that investment:

a. Accounting principles prohibit exercising the fair value option when it comes to of investments in common stocks.

b. Accounting principles prohibit exercising the fair value option when it comes to of investments in common stocks that give the investor the ability to exert influence significant about the company in which you invested.

c. You can exercise the fair value option, but you must continue to use the economic method.

d. Once you exercise the fair value option, you will stop using the economic method and will recognize the changes in fair value in the Statement of Income and Expenses.

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