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What was effect on net income of entering into derivative

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Reference no: EM132796118

On January 1, 2021, Titanium Ltd. purchased a call option for $60 on Yellow's common shares. The call option gives Titanium the option to buy 1,000 shares of Yellow at a strike price of $4 per share any time during the next year. Yellow's shares were trading for $4 on January 1, 2020, making the intrinsic value of the option $0 on that date. On June 30, 2021, the market price for Yellow's shares was $5 per share and the fair value of the option was $1,800

Instructions:

Problem a. Prepare the journal entry to record the purchase of the call option on January 1, 2021.

Problem b. Prepare the journal entry(ies) to recognize the change in the call option's fair value as at June 30, 2021.

Problem c. What was the effect on net income of entering into this derivative transaction for the period from January 1 to June 30, 2021?

Reference no: EM132796118

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