Current Attempt in Progress On August 15, 2019, Martinez Co. invested idle cash by purchasing a...

Current Attempt in Progress

On August 15, 2019, Martinez Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $738. The notional value of the call option is 820 shares, and the option price is $82. The option expires on January 31, 2020. The following data are available with respect to the call option.

Date	Market Price of Counting Crows Shares	Time Value of Call Option
September 30, 2019	$98 per share	$369
December 31, 2019	$94 per share	133
January 15, 2020	$96 per share	62

Prepare the journal entries for Martinez for the following dates.

(a)		Investment in call option on Counting Crows shares on August 15, 2019.
(b)		September 30, 2019—Martinez prepares financial statements.
(c)		December 31, 2019—Martinez prepares financial statements.
(d)		January 15, 2020—Martinez settles the call option on the Counting Crows shares.

(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	Aug. 15, 2019Sep. 30, 2019Dec. 31, 2019Jan. 15, 2020

(b)	Aug. 15, 2019Sep. 30, 2019Dec. 31, 2019Jan. 15, 2020

		(To record the change in intrinsic value.)


		(To record the time value change.)
(c)	Aug. 15, 2019Sep. 30, 2019Dec. 31, 2019Jan. 15, 2020

		(To record the change in intrinsic value.)


		(To record the time value change.)
(d)	Aug. 15, 2019Sep. 30, 2019Dec. 31, 2019Jan. 15, 2020

		(To record the time value change.)



		(To record settlement of call option.)

Expert Solution

Date	particulars	debit	credit
Aug 15, 2019	call option	$738
	Cash		$738
Sept 30, 2019	Unrealized holding gain or loss- income (820*(98-82))	$13,120
	Call option		$13,120
	(To record the change in intrinsic value)

	Unrealized holding gain or loss - income (738-369)	$369
	Call option		$369
	(The record the time value change)

Dec 31, 2019	unrealized holding gain or loss-income (820*(98-94))	$3,280
	Call option		$3,280
	(To record the change in intrinsic value)

	Unrealized holding gain or loss-income (369-133)	$236
	Call option		$236
	(To record the time value change)

Jan 15, 2020	unrealized holding gain or lose-income (133-62)	$71
	Call option		$71
	(To record the time value change)
	Cash (820*(96-82))	$10,660
	Gain on settlement of call option	$687
	Call option (738+13,120)-(369+3,280+236)		$9,973
	(To record the settlement of call option)

ekkarill92 answered 1 year ago

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