Describes gaap accounting for this call option

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Reference no: EM131878767

1. You have your eyes set on a beautifully waterfront home in Barriefield Villiage. The good news, you have a great job and can afford to pay $7500.35 a month towards the mortgage. The bad news, the house costs 2.2 million dollars. Assuming you make your mortgage payments at the end of each month, will make a 20% down payment and get a 3.5% APR on your mortgage, how long will it take to pay the house off (rounded to the nearest year)?

a. 33 years

b. 55 years

c. 664 years

d. Infinity (i.e. payments are too low and you will never pay off the home).

2. Which of the following accurately describes GAAP accounting for this call option?

A. The realized gain is $35,000

B. The realized gain applicable to the year ending December 31, 2009 is $35,000

C. The unrealized gain recognized, on the income statement, on December 31, 2009 is $30,000

D. The call option will be reported on the balance sheet at $100,000 and a $0 unrealized gain will be reported as a component of accumulated other comprehensive income for the year ending December 31, 2009.

Reference no: EM131878767

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