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Potential development with respect to call option

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Reference no: EM131020186

The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on Wade common shares on July 7, 2014, for $240. The call option is for 200 shares (notional value), and the strike price is $70. (The market price of a share of Wade stock on that date is $70.) The option expires on January 31, 2015. The following data are available with respect to the call option.

Date

September 30, 2014 December 31, 2014 January 4, 2015

Instructions

Market Price of Wade Shares

$77 per share 75 per share 76 per share

Time Value of Call Option

$180 65 30

Prepare the journal entries for Miller Co. for the following dates.

(a) July 7, 2014—Investment in call option on Wade shares.

(b) September 30, 2014—Miller prepares financial statements.

(c) December 31, 2014—Miller prepares financial statements.

(d) January 4, 2015—Miller settles the call option on the Wade shares.

Reference no: EM131020186

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