Reference no: EM132937083
On April 1, 2021, Rangers Ltd. purchased a call option from Mets Investments Corporation. The option gave Rangers the right to buy 5,000 shares in Nationals Ltd., at $ 50 per share. On the day Rangers purchased the option, Nationals shares were trading at $ 50 each. Rangers paid $ 1,000 for the options. On April 30, 2021, the Nationals shares were trading at $ 53.50 each, and the options for Nationals shares were trading at $ 18,000. On May 15, Nationals shares were trading at $ 56 and the options were trading at $ 30,000.
Instructions
Problem a) Prepare the journal entries to record the above transactions on April 1, 2021, and any subsequent adjusting entries in April 2021, if any.
Problem b) Prepare the May 15 journal entry assuming Rangers sold the call option at the market price for cash.
Problem c) Prepare the May 15 journal entry assuming Rangers takes delivery of shares in Nationals.
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