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.