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What is the journal entry to record the purchase

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Problem: On January 2, 2020, Oriole Company purchases a call option for $290 on Merchant common stock. The call option gives Oriole the option to buy 910 shares of Merchant at a strike price of $52 per share. The market price of a Merchant share is $52 on January 2, 2020 (the intrinsic value is therefore $0). On March 31, 2020, the market price for Merchant stock is $56 per share, and the time value of the option is $220.

Required:

Question 1: What is the journal entry to record the purchase of the call option on January 2, 2020? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Question 2: What is the journal entries to recognize the change in the fair value of the call option as of March 31, 2020? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Question 3: What was the effect on net income of entering into the derivative transaction for the period January 2 to March 31, 2020?

Reference no: EM132421249

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