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Ocean Sailings, Inc. ("OSI") acquired an 85% interest in Stormy Cruises Corp on December 31...

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Accounting

Ocean Sailings, Inc. ("OSI") acquired an 85% interest in Stormy Cruises Corp on December 31 for $970,000. OSI has the ability to exercise significant influence on management decisions. The Stormy Cruises stock is publicly traded. During the year, Stormy Cruises reported net income of $160,000 and paid cash dividends of $40,000.

Which one of the following best describes how OSI should account for its investment in Stormy Cruises?

A. Apply the equity method and report the investment at market value at year end.

B. Apply the equity method and perform a full consolidation.

C. Apply mark-to-market accounting and consolidate the statements at year end.

D. Account for the investment as a tax-exempt special purpose entity.

E. Apply the cost method and perform a partial consolidation.

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