On August 1, 2020, Sage Ltd. purchased a call option from Starco Corporation. The option gave...

On August 1, 2020, Sage Ltd. purchased a call option from Starco Corporation. The option gave Sage the right to buy 8,000 shares in a third company, Dillon Ltd., at a price of $10 per share. On the day Sage purchased the option, Dillon shares were trading at $10 each. Sage paid $1,300 for the options. On August 31, 2020, the Dillon shares were trading at $12 each, and the options for Dillon shares were trading at $25,000. On September 15, Sage settled the options in cash when the Dillon shares were trading at $16 and the options were trading at $48,000.

QUESTION:

1) Prepare the journal entries to record the above transactions.

A) (To record the acquisition of the option.)

B) (To record the change in value of the option.)

C) (To record the change in value of the option.)

D) (To record the settlement of the option.)

2) Prepare the September 15 journal entry settling the option for cash, and assuming Sage accepted instead the shares in Dillon.

A) (To record the change in value of the option.)

B) (To take delivery of the shares
using the option.)

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

On June 1, 2018, DCI purchased a call option for $450, which gave it the right...

On June 1, 2018, DCI purchased a call option for $450, which gave it the right to buy 10,000 shares of iLines, Inc., for $54 each until December 1, 2018 . On that date, iLines’ shares were being traded for $52. On June 30, 2018, the option contract could be traded in the market at $96,000. On December 1, 2018, with the shares being traded at $70 each, DCI exercised the option and took delivery of the shares of iLines....

On June 1, 2020, Krypton Industries [KI] purchased a call option for $ 2,400, giving it...

On June 1, 2020, Krypton Industries [KI] purchased a call option for $ 2,400, giving it the right to buy 2,000 shares of Kriminel Corporation for $ 20 per share. On June 30, 2020, similar options were being traded at $3,100. On August 18, 2020, when the option value was $ 12,000, Omega settles the option for cash. On August 18, 2020, KI settles the option for cash when the option value in the market is $12,000. Prepare the journal...

Blue Corporation purchased a new machine for its assembly process on August 1, 2020. The cost...

Blue Corporation purchased a new machine for its assembly process on August 1, 2020. The cost of this machine was $169,800. The company estimated that the machine would have a salvage value of $16,800 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 20,000 hours. Year-end is December 31. Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate...

Marigold Corporation purchased a new machine for its assembly process on August 1, 2020. The cost...

Marigold Corporation purchased a new machine for its assembly process on August 1, 2020. The cost of this machine was $127,500. The company estimated that the machine would have a salvage value of $10,500 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 20,000 hours. Year-end is December 31. Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate...

Bramble Corporation purchased a new machine for its assembly process on August 1, 2020. The cost...

Bramble Corporation purchased a new machine for its assembly process on August 1, 2020. The cost of this machine was $150,900. The company estimated that the machine would have a salvage value of $15,900 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 22,500 hours. Year-end is December 31. Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate...

In your portfolio you have purchased 1 European Call option and written 1 European Put option...

In your portfolio you have purchased 1 European Call option and written 1 European Put option on stock ABC for $4 and $2 respectively. The strike/exercise prices of both the options are equal to $50. These options are set to expire on the 3rd Friday of June 2015. The possible values for the price of the stock ABC on the 3rd Friday of June 2015 are: $30 with 20% chance; $50 with 30% chance and $70 with 50% chance. The...

Mary purchased a call option on Apple. The call premium was $2. The strike price is...

Mary purchased a call option on Apple. The call premium was $2. The strike price is $180. When she purchased the option Apple stock was trading at $170. The option matured today and the stock price is $181. What is her profit/loss? Should she exercise her option?

On December 31, 2020, Sage Company acquired a computer from Plato Corporation by issuing a $650,000...

On December 31, 2020, Sage Company acquired a computer from Plato Corporation by issuing a $650,000 zero-interest-bearing note, payable in full on December 31, 2024. Sage Company’s credit rating permits it to borrow funds from its several lines of credit at 12%. The computer is expected to have a 5-year life and a $76,000 salvage value. 1. Prepare the journal entry for the purchase on December 31, 2020. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and...

On August 1, 2018 Barkley Corporation purchased equipment for $90,000 from RCH Company, paying $18,000...

On August 1, 2018 Barkley Corporation purchased equipment for $90,000 from RCH Company, paying $18,000 in cash and signing a 9% note for the balance. Interest and the note balance are due in full on July 31, 2019. On September 30, 2018, Barkley Corporation borrowed $275,862 from Fast Eddie’s Financing. Barkley signed a promise to pay contract -- agreeing to pay $300,000 at the end of 12 months on July 31, 2019. Barkley Corporation has a year end...

At expiry, a holder of a call option with an exercise price of $32 (purchased for...

At expiry, a holder of a call option with an exercise price of $32 (purchased for a premium of $0.85) over Wesfarmers shares (now trading at $33.65) will: Select one: not exercise with a loss of $1.65 per share exercise with a profit of $1.65 per share exercise with a profit of $0.80 per share not exercise with a loss of $0.85 per share exercise with a profit of $0.85 per share

Subjects