Reference no: EM132350576
Question - Derivative Financial Instrument
The treasurer of JOE Co. has read on the Internet that the stock price of Manchester Inc. is about to take off. In order to profit from this potential development, JOE Co. purchased a call option on Manchester common shares on August 21, 2014, for $387. The call option is for 300 shares (notional value), and the strike price is $32. (The market price of a share of Manchester stock on that date is $32.) The option expires on January 31, 2015. The following data are available with respect to the call option.
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Date
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Market Price of Manchester Shares
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Time Value of Call Option
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September 30, 2014
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$36 per share
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$200
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December 31, 2014
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37 per share
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90
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January 4, 2015
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33 per share
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70
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Instructions - Prepare the journal entries for JOE Co. for the following dates.
(a) August 21, 2014-Investment in call option on Manchester shares.
(b) September 30, 2014-JOE prepares financial statement.
(c) December 31, 2014-JOE prepares financial statement.
(d) January 4, 2015- JOE settles the call option on the Manchester shares.
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