Prepare the journal entry to record purchase of call option

Assignment Help Financial Accounting
Reference no: EM13793597

On January 2, 2014, Joes Company purchases a call option for $300 on Merchant common stock. The call option gives Joes the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January 2, 2014 (the intrinsic value is therefore $0). On March 31, 2014, the market price for Merchant stock is $53 per share, and the time value of the option is $200.

Instructions:

(a) Prepare the journal entry to record the purchase of the call option on January 2, 2014.

(b) Prepare the journal entry(ies) to recognize the change in the fair value of the call option as of March 31, 2014.

(c) What was the effect on net income of entering into the derivative transaction for the period January 2 to March 31, 2014?

Reference no: EM13793597

Questions Cloud

Create an employee satisfaction survey : Creating an Employee Satisfaction Survey to help the leaders in your organization understand what drives and motivates their employees. This is your survey and you can develop your organization any way you choose when answering the questions.
Job order manufacturing-process are two major costing system : Job order manufacturing and process are two major costing system used in manufacturing. Briefly contrast the characteristics of these two systems.
How has rhetorical model been incorporated into my opening : How has the rhetorical model been incorporated into my opening? How does the summary/introduction set up my specific thesis and overall paper?
Estimate of the companys net operating income : Maack Corporation's contribution margin ratio is 19% and its fixed monthly expenses are $50,500. If the company's sales for a month are $312,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses ..
Prepare the journal entry to record purchase of call option : On January 2, 2014, Joes Company purchases a call option for $300 on Merchant common stock. The call option gives Joes the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on Janua..
Considered in preparing a statement of cash flows : Each of these items must be considered in preparing a statement of cash flows for Irvin Co. for the year ended December 31, 2014. For each item, state how it should be shown in the statement of cash flows for 2014. (a) Issued bonds for $200,000 cash...
Self-managed teams in the health care industry : What percentage of self-managed teams in the health care industry are successful?
Explain the quality and delivery performance for the company : Select at least three elements of lean manufacturing that may improve both the quality and delivery performance for the company. How might these improve the quality and delivery performance
Modes of entry and the international strategy : Modes of Entry and the International Strategy

Reviews

Write a Review

Financial Accounting Questions & Answers

  What are the three brackets of control

In the grand scheme of things, the entire subsidiary is not purchased. This begs the question of how much control the parent company has over the subsidiary. What are the three brackets of control? How are each of these brackets classified?

  Determine amount of the amortization or depletion expense

Determine amount of the amortization or depletion expense for the current year for each of the foregoing items.

  Determine the spending and efficiency variance

Determine the spending and efficiency variance for variable manufacturing overhead costs for the year.

  Determine the modal and the cumulative probability

Determine the modal and the cumulative probability (summed probability of sales being either positive or negative,) and (c) the weighted probability number (expected value of probability times estimated sales times sales price).

  Financial analysis- planning and budgeting

While there is no saving in the cost, the US Treasury rate can be used; however, there are not many ways that DCF can be used even though it is useful in make decision where investments are concerned.

  Design a monitoring activity

What are monitoring activities - design a monitoring activity that would achieve this assurance objective.

  Adds raw materials to a process at the beginning of process

A department adds raw materials to a process at the beginning of the process and incurs conversion costs uniformly throughout the process. For the month of January, there were no units in the beginning work in process inventory; 80,000 units were sta..

  Determine the equivalent units for may for materials

Finding  the equivalent units for materials and conversion - Determine the equivalent units for May for materials and conversion costs?

  What would happen to autonomous consumption

What would happen to autonomous consumption if household debt fell and the interest rate rose over the same time period? What would happen to autonomous consumption if real wealth increased and expectations of the future became more optimistic?

  A friend of yours who is not an accountant heard a story on

a friend of yours who is not an accountant heard a story on the news about revenue recognition fraud and doesnt

  Provide specific examples of accounting information

provide specific examples of accounting information that might be useful for assessing each factor noted above. Be sure to explain specifically how each example might be used in assessing the elements of of a firm's strategy.

  What are the potential benefits of leasing

it was obsolete after only 4 years. Justin Meyer, CFO of Pryor Inc., is considering leasing new equipment rather than buying it. What are the potential benefits of leasing?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd