Reference no: EM132769031
On February 1, 2019, SC Company enters into a contract with San Miguel Corp. that gives SC Company the right to sell, and San Miguel Corp. the obligation to buy the fair value of 2,000 shares of SC Company's own ordinary share outstanding as of January 31, 2020 at a strike price of P196,000 (P98 per share) on January 31, 2020, if SC Company exercises the right. The contract will be settled net in cash, however, if SC Company does exercise the right, no payment will be made.
Below is pertinent relevant information:
2/1/2019 12/31/2019 1/31/2020
Market price per share P100/share P95/share P95/share
Fair value of options P10,000 P8,000 P6,000
Problem 1: What is the net effect in the shareholder's equity as a result of the exercise of the option?
Group of answer choices
a. None
b. P4,000
c. P8,000
d. P6,000