Dunbrook Travel, Inc. acquired an 80% interest in Ocean Cruises on December 31 for $970,000. Dunbrook has the ability to exercise significant influence on management decisions. The Ocean Cruises stock is publically traded. During the year, Ocean Cruises reported net income of $160,000 and paid cash dividends of $40,000.
How should Dunbrook Travel account for its investment in Ocean Cruises?
Apply the equity method and report the investment at market value at year end.
Apply mark-to-market accounting and consolidate the statements at year end.
Account for the investment as a special purpose entity.
Apply the equity method and perform a full consolidation.