In: Accounting
Exercise 17-27
On August 15, 2016, Splish Co. invested idle cash by purchasing
a call option on Counting Crows Inc. common shares for $504. The
notional value of the call option is 560 shares, and the option
price is $56. The option expires on January 31, 2017. 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, 2016 $67 per share $252
December 31, 2016 $64 per share 91
January 15, 2017 $66 per share 42
Prepare the journal entries for Splish for the following
dates.
(a) Investment in call option on Counting Crows shares on August
15, 2016.
(b) September 30, 2016—Splish prepares financial statements.
(c) December 31, 2016—Splish prepares financial statements.
(d) January 15, 2017—Splish 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, 2016
Sep. 30, 2016
Dec. 31, 2016
Jan. 15, 2017
(b)
Aug. 15, 2016
Sep. 30, 2016
Dec. 31, 2016
Jan. 15, 2017
(To record the change in intrinsic value.)
(To record the time value change.)
(c)
Aug. 15, 2016
Sep. 30, 2016
Dec. 31, 2016
Jan. 15, 2017
(To record the change in intrinsic value.)
(To record the time value change.)
(d)
Aug. 15, 2016
Sep. 30, 2016
Dec. 31, 2016
Jan. 15, 2017
(To record the time value change.)
(To record settlement of call option.)
Date | accounts titles and explanation | debit | credit |
August 15, 2016 | call option | 504 | |
Cash | 504 | ||
September 30, 2016 | unrealised holding gain or loss- income (560*(67-56)) | 6160 | |
Call option | 6160 | ||
(To record the change in intrinsic value) | |||
Unrealised holding gain or loss - income (504-252) | 252 | ||
Call option | 252 | ||
(The record the time value change) | |||
December 31, 2016 | unrealised holding gain or loss-income (560*(67-64)) | 1680 | |
Call option | 1680 | ||
(To record the change in intrinsic value) | |||
Unrealised holding gain or loss-income (252-91) | 161 | ||
Call option | 161 | ||
(To record the time value change) | |||
January 15, 2017 | unrealised holding gain or lose-income (91-42) | 49 | |
Call option | 49 | ||
(To record the time value change) | |||
Cash (560*(66-56)) | 5600 | ||
Gain on settlement of call option | 1027 | ||
Call option (504+6160)-(252+1680+161) | 4571 | ||
(To record the settlement of call option) | |||