Prepare the journal entry to record the purchase of the call

Reference no: EM13233623

On January 2, 2014, Jones Company purchases a call option for $300 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January 2, 2014 (the intrinsic value is therefore $0). On March 31, 2014, the market price for Merchant stock is $53 per share, and the time value of the option is $200.
Instructions
(a) Prepare the journal entry to record the purchase of the call option on January 2, 2014.
(b) Prepare the journal entry(ies) to recognize the change in the fair value of the call option as of March 31, 2014.
(c) What was the effect on net income of entering into the derivative transaction for the period January 2 to March 31, 2014?

Reference no: EM13233623

Questions Cloud

What is the rock''s velocity : A rock is tossed straight up with a velocity of 23 m/s When it returns, it falls into a hole 10m deep, What is the rock's velocity as it hits the bottom of the hole

Explain syndiotactic polystyrene that has a density : Isotactic polystyrene that has a density of 1.12 g/cm3 and a weight-average molecular weight of 150,000 g/mol; syndiotactic polystyrene that has a density of 1.10g/cm3 and a weight-average molecular weight of 125,000 g/mol

Explain the concept of a process approach : Explain the concept of a process approach.

What is groupthink : What is groupthink? Why can groupthink be detrimental to effective group functioning?

Prepare the journal entry to record the purchase of the call : Prepare the journal entry to record the purchase of the call option on January 2, 2014.

Find two points on average households annual demand curve : A few years ago, when residential electricity in the state of Washington cost about half as much as in nearby Montana, the average household in Washington used about 1,200 kilowatt-hours per month, whereas Montana used about half that much per hou..

How can employers guard against pay inequities in workforce : How can employers guard against pay inequities in the workforce?

Compute the number-average molecular weight : Calculate the number-average molecular weight of a random nitrile rubber [poly(acrylonitrile-butadiene) copolymer] in which the fraction of butadiene repeat units is 0.30; assume that this concentration corresponds to a degree of polymerization of..

What might be some drawbacks or challenges of designing : What might be some drawbacks or challenges of designing this job for efficiency?

User Account

All Pages