Question

رThe treasurer of Miller Co. has readnon the Internet that the stock price of
Wade Inc. is about to take off . In order to profit from this potential
development, Miller Co. purchased a call option on Wade common shares
on July 7, 2020, for $400. The call option is for 250shares (notional value),
and the strike price is $50. (The market price of a share of Wade stock on
that date is $50.) The option expires on January 31, 2021. The following
data are available with respect to the call option.
Date Market Price of Wade Shares Time Value of
Call
September 30, 2020 $55 per share
$100
December 31, 2020 45 per share
40
January 4, 2021 47 per share
33
Instructions
Prepare the journal entries for Miller Co. for the following dates.
a. July 7, 2020—Investment in call option on Wade shares.
b. September 30, 2020—Miller prepares financial statements.
c. December 31, 2020—Miller prepares financial statements.
d. January 4, 2021—Miller settles the call option on the Wade shares.

Answer 1

Answer :-

Journal Entry
No.	Date	Particulars	Dr. Amt.	Cr. Amt.
a.	7-Jul-20	Call Option                                                                    Dr.	400
		To Cash		400
b.	30-Sep-20	Call Option                                                                     Dr.	1,250		($55 - $50) X 250 Shares
		To Unrealized Holding Gain or Loss - Income		1,250
	30-Sep-20	Unrealized Holding Gain or Loss - Income         Dr.	300		$400 - $100
		To Call Option		300
c.	31-Dec-20	Unrealized Holding Gain or Loss - Income         Dr.	2,500		($55 - $45 ) X 250 Shares
		To Call Option		2,500
	31-Dec-20	Unrealized Holding Gain or Loss - Income         Dr.	60		$100 - $40
		To Call Option		60
d.	4-Jan-21	Call Option                                                                     Dr.	500		($47 - $45) X 250 Shares
		To Unrealized Holding Gain or Loss - Income		500
	4-Jan-21	Unrealized Holding Gain or Loss - Income         Dr.	7		$40 - $33
		To Call Option		7
	4-Jan-21	Cash                                                                                   Dr.	750		($47 - $50 ) X 250 Shares
		Loss on settlement of Option                                 Dr.	33
		To Call Option		783