Prepare the journal entries to record the transactions

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Question - On August 1, 2020, Culver Ltd. purchased a call option from DDR Investments Corporation. The option gave Culver the right to buy 12,000 shares in a third company, MGL Ltd., at a price of $23.25 per share. On the day Culver purchased the option, MGL shares were trading at $23.25 each. Culver paid $800 for the options. On August 31, 2020, the MGL shares were trading at $25.75 each, and the options for MGL shares were trading at $30,500. On September 15, Culver settled the options in cash when the MGL shares were trading at $27.50, and the options were trading at $51,000.

Required -

a) Prepare the journal entries to record the above transactions.

b) Prepare the September 15 journal entry assuming Culver accepted instead the shares in MGL.

Reference no: EM133016148

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