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How should poncho account for its investment in sombrero

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Question - Poncho Company currently owns 100% of the outstanding common voting shares of Sombrero Inc., which has 1,000,000 shares outstanding. Sombrero has one major bondholder (Mr. Botas Inc. ) whose Sombrero inc. bonds have a conversion option, which, if exercised would be convertible to 900,000 voting shares.

Required -

a) Does Poncho have control over Sombrero? Briefly support your answer.

b) How should Poncho account for its investment in Sombrero?

Reference no: EM133129869

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