Reference no: EM132749260
Question - JTC purchased call options on Flynn common shares on July 7, 2020, for $200 as a speculative investment. The call options give JTC the right to buy 100 shares at a strike price of $20 each. The options expire on January 31, 2021.
The following data is observed through 2020:
Flynn Stock Price Option Time Value
July 7, 2020 $20 $200
September 30, 2020 $25 $150
December 31, 2020 $23 $90
1. At September 30, 2020, the options are on JTC's balance sheet at a value of
a. $350
b. $500
c. $150
d. $650
2. In the fourth quarter (October - December) of 2020, JTC records a net
a. Loss
b. Gain
3. If JTC settles the options in January 2021 on a day when the stock price is $22, the settlement entry would include a debit to cash of
a. $200
b. $290
c. $2,000
d. $2,200
e. $110
4. In the third quarter (July to September) of 2020, JTC records a gain in intrinsic value of
a. $1,800
b. $150
c. $200
d. $350
e. $50
5. At September 30, 2020, the options are on JTC's balance sheet at a value of
a. $150
b. $1,950
c. $250
d. $350 .
6. At December 31, 2020, the options are on JTC's balance sheet at a value of
a. $260
b. $110
c. $90
d. $460
e. $490
f. $290
7. At September 30, 2020, the options are on JTC's balance sheet at a value of
a. $350
b. $1,950
c. $200
d. $150
8. In the fourth quarter (October - December) of 2020, JTC records a loss in time value of
a. $150
b. $60
c. $90
d. $110
9. At December 31, 2020, the options are on JTC's balance sheet at a value of
a. $260
b. $200
c. $350
d. $490
e. $460
f. $290
In January 2020, Bear Co. enters into a futures contract to buy 1,000 barrels of oil at $60 per barrel. Bear treats this as a speculative derivative. Subsequent prices are as follows.
Date Market Price of Oil
March 31, 2020 $67 per barrel
June 30, 2020 69 per barrel
September 30, 2020 55 per barrel
10. The first quarter (January - March) income statement includes a (Loss or Gain) of ($2,000 or $67,000 or $7 or $7,000) related to the futures.
11. On the balance sheet at June 30, 2020, the futures are recognized as a(n) (Not recognized, Asset or Liability)
12. The third quarter (July - September) income statement includes a (Loss or Gain) of ( $9,000 or $55,000 or $5,000 or $14,000) related to the futures.
13. On the balance sheet at September 30, 2020, the futures are recognized as a(n) (Liability or Not recognized or Asset)